We invest in companies, not countries. As the global economy has become more integrated, it's less important where those companies are located. In the 1980's Capital realised that many of these world class companies were found in countries that were in less developed countries. This realisation led us to launch the world's first global emerging markets equity fund, starting a whole new brand of global investing.
In 1986, Capital Group launched the Emerging Markets Growth Fund, a US$50 million closed-end fund with a handful of investors. The fund was the initiative of the International Finance Corporation, a subsidiary of the World Bank, which hired Capital to manage the mandate.
"There wasn't a lot of enthusiasm at the time among potential investors for emerging markets equity" says David Fisher a 40 year veteran of global investing and an original and current portfolio manager of the fund. "Despite client apprehension, our belief was that growth rates in emerging markets would be higher than those in the developed world, and that there would be tremendous long-term investment opportunities for our clients. That belief is equally strong today as it was back in 1986."
By that point, having a strong commitment to global research that spanned more than 50 years, Capital set about researching and investing in emerging market companies the same way it had done in our other developed market portfolios.
Nevertheless, in a very real way, Capital was breaking new ground in the world of investing. "We had analysts go out, call on companies and come back and report on what they found attractive. It was exciting because in many cases this was literally the first time a company ever saw an analyst. The companies wondered why these people were asking them all these strange questions about dividend policy, capital spending or earnings," says David.
The challenges were real. Data was scarce and unreliable. There was only one benchmark which had opened the same year as our fund. Many countries weren't open to foreign investors and those that were had stringent rules on the flow of money, capital gains and taxes. "In Jordan, we had to receive approval from the King himself before we could invest in any of their local companies," remembers David.
Emerging markets investing has come a long way in the last 25 years. Markets that were formerly closed or underdeveloped are now home to many world-class companies which are some of the biggest in their industries. "A lot has changed. Soon after the fund was launched, I went to China to consult on opening a stock market in Shanghai. It's hard to believe, but since its opening in 1990, it has grown to be one of the largest stock markets, by market cap, in the world." said David.
Emerging market companies continue to modernise their corporate governance and institute policies that are indistinguishable with global best practices. Indeed, as the world recovers from the great financial crisis, many EM companies are in position to grow over the long-term both at home and in new markets abroad, including developed markets.
As emerging markets evolve, so too has Capital continued to be a pioneering leader in the emerging markets, through expanding our reach into more regions and countries and bringing EM opportunities to more clients in more ways.