Waiting for Nigeria’s economy and currency to settle
Oil market disruption risk is key over next 10-15 years

Robert Marshall-Lee ran one of the best-performing emerging-market funds this year by betting big on India and China. He’s holding off — for now — on places like Argentina, Nigeria and Vietnam.

Marshall-Lee’s $291 million Dreyfus Global Emerging Markets Fund returned 37 percent since January with stakes in companies such as Vakrangee Ltd., the Mumbai-based software developer that is the fund’s largest holding. Lagos beckons, but not anytime soon.

“We’ve been waiting to invest in Nigeria for the last four or five years, just being patient for the economy and the currency to shake out,” London-based Marshall-Lee, 45, said in an interview. “We think the opportunity is there.”Marshall-Lee’s fund is among the top 11 percent of emerging-market funds since the end of last year, data compiled by Bloomberg show.

Here’s what else Marshall-Lee had to say about his investing approach:
Do any frontier markets stand out?

“It depends on the time horizon. We’ve been waiting to invest in Nigeria. Vietnam is developing in an attractive way. Argentina, there are some strong possibilities if they can get on top of their fiscal and inflationary situation.”

What generalized risks worry you?

“The oil market disruption risk is huge over the next 10 to 15 years. We’ve got electric vehicles which are likely to grow very rapidly, particularly in China and Europe.”
“That’s a big risk to the Middle East particularly. Even somewhere like Nigeria. Nigeria is a petro-economy. Russia is also a petro-economy. We have no oil companies in our fund. We have no Russian exposure in our fund, so there’s all sorts of things that a highly active benchmark-agnostic manager can avoid well ahead of time.”

What do you make of the end of expansionary monetary policy?

“We’ve seen companies with higher dividend yields getting hit, because they were beneficiaries of yield compression, then when people think interest rates are going to get hit they get worried about them. I think it’s a bit overdone, to be honest.”

What are your big calls?

“Battery supply chain companies. We have a lithium producer in Chile and we have a battery producer in Korea — those have been very good over the last few years.”
“We’re pretty positive on India overall.”

How do you take corporate governance into account?

“When you think about the emerging-market index, something like 25 percent of the index is state-controlled. That’s 25 percent of the index that is run by Mr. Putin or the Chinese Communist Party, not the investor.”
“But the long-term returns tend to be much lower than that of good-quality companies. You can imagine that if Russia gets into a difficult situation, you are very low down in the pecking order when they sort out that situation.”

What’s your investment strategy?

“We invest in a five-year horizon, and we focus on return on capital, particularly when cash flows from the current operations are recycled into new capital investments.”
“We look for companies that can recycle profits into future projects.”
“On the other hand, you might have a really good family-run company in India, for example, which doesn’t fulfill any of those tickboxes. They might not produce a nice, glossy corporate governance report, but over the long term they’ve had great capital allocation positions and they always treat the minorities very fairly.”
“What does work is understanding the company and looking for a long track record of treating the minority shareholders very well.”

The MSCI emerging-market stock index rose 0.9 percent at 8:20 a.m. in New York.

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