(pictured: Rusty Johnson)
For all big super funds, or any investor trying to mimic their strategies, what you do about currency is arguably your biggest investment decision. And you cannot not make it – doing nothing is not an option. With emerging markets, that decision becomes a bit more interesting.
Rusty Johnson, head of emerging markets (EM) equities and co-manager of frontier markets for US-based Harding Loevner, points out that some of the currencies Australia has invested in through various international strategies, such as emerging markets, have tended to soften the blow of our falling dollar versus the greenback. Two of the best add-ons to EM performance in the past two years, for instance, have been the Chinese yuan and Korean won.
“If you want to take the next leap of faith,” he said last week on a regular visit to Australia, “then some of the weaker, commodity-based currencies will pop if the [US] dollar backs off. Historically, the safe trade for Australian investors has been to buy the US dollar… But I think it’s probably peaked, so if you agree then buying a basket of non-US currencies is a good idea.”
With the strength of the greenback versus all other currencies in the past two years, Johnson says, non-US investors have only seen the headwinds of FX. But currency can also be a nice tail wind from time to time.
Harding Loevner is not actually a currency specialist, nor either is it a top-down manager. It’s a 25-year-old specialist global stock picker with a range of equity strategies managed to a quality and growth style. But currency is an important topic and Johnson is happy to talk about it.
Named after its founders, David Loevner, who is still chief executive, and the now-retired Daniel Harding, the firm is an affiliate of Affiliated Mangers Group (AMG). It is based in Bridgewater, New Jersey, and has 90 staff and about US$38 billion under management. Unlike most US managers, the firm has focused on global and international investments since inception in 1989.
Harding Loevner’s style is to look first at ‘quality’, which it clearly defines, and growth prospects. Then price. It has four main quality/growth criteria: competitive advantage, financial strength, management and sustainable growth.
Johnson says: “Quality is durable. The good companies stay that way. We like to invest in sustainable businesses over years.”
The manager is currently overweight to China, with tech-orientated stocks such as C-Trip and Ten Cent part of the portfolio. There are currently 12 Chinese stocks in the 80-odd-stock portfolio, which spans 25 emerging markets and five frontier markets.
“With China and elsewhere,” Johnson says, “instead of buying the market we look for themes. They [China] have new digital models and new channels for commerce… China has tipped over the affordability scale. They [consumers] are able to buy more big-ticket items.”
AMG launched an Australian-domiciled wholesale trust for Harding Loevner last year, with a $25,000 minimum investment. Perpetual is the RE, Northern Trust the custodian and OneVue the registry operator.
– Greg Bright