Vontobel growth surges with emerging markets

11/11/2013, Pensions & Investments

Despite emerging markets equity being a thorn in the side of many money managers these days, the asset class has served Vontobel Asset Management Inc. quite well.

The New York-based money manager saw its worldwide AUM reach $35.92 billion in 2012, nearly double the $20.02 billion from the year before, according to Pensions & InvestmentsResearch Center data.

Now, the firm's website boasts global AUM of $42.5 billion as of June 30, about $26 billion of which is in emerging markets equity.

“We've done extremely well,” said Peter Newell, Vontobel managing director and senior portfolio adviser, in a telephone interview.

Contributing to that growth in AUM were new emerging markets equity accounts awarded by the $2 billion City of San Jose (Calif.) Federated City Employees Retirement System and $2.9 billion San Jose Police & Fire Department Retirement Plan. In August, the Police & Fire Department Retirement Plan hired Vontobel to run $60 million, while the Federated City Employees Retirement System hired it to manage $135 million.

While emerging markets equities have fallen about 40% have three times in the last 12 years, separate account data from Morningstar Inc. show annualized returns for Vontobel's diversified emerging markets strategy for the one-, three-, five- and 10-year marks ended July 31 were 5.67%, 10.46%, 8.6% and 18.31%, respectively. These are all well above the returns for the MSCI Emerging Markets index of 1.95%, 1.01%, 0.55% and 13.1% for the same periods.

Mr. Newell attributed the firm's success in part to the investment philosophy implemented by Chief Investment Officer Rajiv Jain that he describes as benchmark agnostic, with sustainable earnings and no market cap limits.

“We manage six strategies with the same philosophy on stock selection,” said Henry Schlegel, president of Vontobel in a separate interview.

“We're trying to find stocks with a high return on assets and high return on investment capital, dominant market share, high barriers to entry and five years of sustainable growth with a minimal exposure to risk,” Mr. Newell added.

The firm also has wound up being on the right side of the consumer staples vs. discretionaries fence. Within the emerging markets sector, Vontobel has been very active in staples, which has outperformed discretionaries for the past two years. Some examples include Brazil's Ambev and Souza Cruz; India companies ITC Ltd. and Nestle India; and SABMiller PLC and Walmart de Mexico.

“(Vontobel) identified the right sector to be in for the consumer side. Others have played discretionaries and they're getting killed,” said Andy T. Iseri, a vice president and an international investment consultant in Callan Associates Inc.'s global manager research group in San Francisco, in an e-mail.

Focus on companies

Vontobel focuses on companies, not regions or countries, seeking out global companies with low debt and high performance. “We're buying into stable businesses that have the opportunity to grow on a sustainable basis and therefore compound our wealth,” said Mr. Schlegel. “It's what we're looking for throughout the emerging markets world.”

The firm looks at emerging markets not unlike long-term U.S. stocks. Vontobel is seeking the global equivalent of Coca-Cola Co., Wrigley's and Anheuser-Busch — companies that produce year after year and enhance value.

“Diversification of income streams is very important to us,” Mr. Newell added.

The firm also refuses to deal with benchmarks, considering it an outdated and inaccurate bellwether for its approach. “Traditionally when you look at markets, you look at risk from the benchmark. We think the benchmark is the risk,” added Mr. Newell.

Both Messrs. Newell and Schlegel pointed out that it took Vontobel years for its investment method to pay off. They launched their emerging markets strategy in 1992.

“We are trying to attract clients that are long-term investors,” noted Mr. Schlegel.

“You push the snowball up the hill and finally it hits the other side and gains momentum,” said Mr. Newell. “It's paid off and our clients have been rewarded.”

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