The Women’s Euro football championship finals which ended last night, featured 16 teams. Ten were managed by “home-grown” coaches, while the remainder were led by what some disgruntled fans tend to refer to as “foreigners”.
England fell into the latter category, of course, with Sarina Wiegman, a Dutchwoman, at the helm. With the Lionesses wining a second consecutive European title, there are unlikely to be any complaints.
The UK’s other representatives at the tournament, Wales, were in the hands of Rhian Wilkinson, who is Canadian. Meanwhile, an Englishwoman, Gemma Grainger, was in charge of Norway.
All things considered, none of this may mean a great deal. Yet it does remind us of an important debate in the realm of emerging markets (EMs), where the respective merits or otherwise of local and non-local investment managers have long been a source of contention.
In my opinion, this is a topic that should be of no little interest to investors. Before we explore it in more detail, though, let me put my cards on the table straight away.
I manage an Asia-focused fund, yet I am Brazilian – and I spend most of my time in London. This is the kind of combination that would send some football supporters into an indignant meltdown.
So why am I convinced that this modus operandi can work very well in the investment arena? The answer lies in what might usefully be thought of as a “best of both worlds” approach to identifying EMs’ hidden gems.
Strengths, weakness and an ideal blend
Perhaps the most obvious potential disadvantage faced by non-local investment managers is a lack of in-depth knowledge of the companies and markets in which they invest. This can lead to unpleasant surprises.
On balance, managers who are unfamiliar with a particular EM might find themselves more prone to bad decisions than those who know the “terrain”. They could even be duped in some cases, including if they have a limited grasp of a market’s cultural aspects and demands.
Yet there are also positives to being one or two steps removed. One of the most significant is relative resistance to the prevailing domestic narrative.
By way of illustration, how might local managers react if the EM in which they are based were to descend into political turmoil? It is quite likely that they would develop a downbeat economic outlook, since the “noise” surrounding them on all sides would be tough to escape.
As a result, they might become blind both to the bigger picture and, crucially, to opportunity. They could fail to spot nascent evidence of a recovery cycle. They may be unable to distinguish the ways in which their own market still holds an edge over others.
Non-local managers, by contrast, should be less likely to get lost in such a fog. Having encountered analogous circumstances in other EMs, they might be able to draw parallels and perceive encouraging patterns. Maybe above all, they ought to be sufficiently detached from events to grasp an EM’s place in the wider investment universe.
All this suggests there is something to be said both for on-the-ground expertise and for a much broader perspective. It follows that, ideally, EM investment management should seek to combine the two.
Fusing local knowledge with global insight
I mentioned earlier that I spend much of my time in London – which is very different from spending all of my time there. My colleagues and I have the task of discovering Asia’s most promising smaller companies, and we feel we can do this only if our stock-picking takes account of micro and macro factors alike.
We therefore fully recognise the value of “being there”, emphasising direct engagement and analysing businesses from the bottom up. But we also fully recognise the value of utilising our global resources, adopting a more comprehensive lens and analysing businesses from the top down.
Accordingly, on the one hand, our investment decisions are informed by in-person observations. On the other, they are also informed by the sort of quantitative and qualitative comparisons that may be best carried out from afar.
It is vital to understand that these processes are complementary rather than in competition with each other. To phrase it in the language of post-match punditry: what we have here is a game of two halves.
This brings us back to football. Older readers may distantly recall the outrage in some quarters when, in 2001, Sweden’s Sven-Göran Eriksson – who at that point had amassed 18 titles on his travels around Europe’s leagues – was appointed coach of the England men’s team.
Similarly, many fans in my homeland were shocked when Carlo Ancelotti was recently named Brazil’s first foreign manager since 1965. Even though his trophy-winning record is virtually unparalleled, the Italian’s arrival was regarded by some as a sad day for the Seleção.
I am not implying for an instant that every non-local investment manager is somehow Eriksson’s equal, less still Ancelotti’s – or the triumphant Wiegman’s, for that matter. But I sincerely believe the narrow-minded notion that a “best of both worlds” approach reduces the chances of success is likely to prove an own-goal in almost any sphere.
Gabriel Sacks is Co-Manager of abrdn Asia Focus plc.
