Understand emerging markets opportunities and the American Century advantage.
By Rajesh Gandhi - June 2019
The global economy has begun to decelerate quite meaningfully since the beginning of the year. The lack of a resolution on the U.S.-China trade front undoubtedly has loomed over the market. And from the Eurozone and United States to Japan and China, many indicators are more downbeat than they have been in years.
Although the backdrop is challenging, the team remains focused on identifying companies exhibiting accelerating and sustainable growth characteristics. Through multiple sources, we continue to find numerous opportunities we consider attractive.
Hear more about the team’s approach in my latest video. I also discuss two businesses we uncovered with growth drivers that may defy the gloom.
The back drop is one in which the global economy has begun to decelerate quite meaningfully.
We started the year hoping for a resolution on the China-U.S. trade front. That, combined with lowered expectations and a lower level for the market, was a great setup for 2019. Unfortunately, the events over the last few months have led to even greater uncertainty being introduced into the markets.
But despite the gloomy backdrop, our approach to identify businesses that exhibit accelerating and sustainable growth characteristics has allowed our team to identify an abundant number of opportunities.
Our philosophy is a unique growth philosophy focused on identifying individual businesses that are exhibiting an acceleration in growth, and where our research and insight deems that growth is sustainable over the medium term.
We identify ideas through multiple different sources. So, for example, we’re very fortunate here in New York to get a lot of managements in our office. Meeting companies one-on-one, speaking to the CEO and CFO, trying to understand: What are the underlying drivers to their business? What are the risks that they see in their markets, for example? That’s the kind of information that we take back and combine with other fundamental data that we observe—either through our research work or through our teaming meetings, the broader office team-wide meeting—we begin to connect the dots to help us identify a business that is at the cusp of that inflection point.
So, for example, as much as the global macro backdrop is uncertain and growth is decelerating, we are able to identify a business in the chemical sector. Now, chemical sector—one would perceive as being cyclically challenged. But a company like DSM—based in the Netherlands that generates three-fourths of its business in the manufacture of human and feed additives—is a business we identified several months ago that is seeing a significant acceleration in revenue growth over the next two to three years, which will ultimately drive an inflection in profitability. That improvement in revenue growth is being driven by three very significant new product launches that they’ve embarked on. One, for example, is a product called Clean Cow. Clean Cow is a feed additive. The goal of this product is to reduce methane emissions by over 30%.
Another high-conviction stock that we like in the energy sector is a Finnish company called Neste. Neste continues to transform itself from being a fossil fuel-based refiner, to a renewable diesel producer. In fact, the industry is expected to grow over 11% compound for the next five years. Neste is the largest manufacturer of renewable diesel. In fact, they have 70% market share globally, and they possess a unique technology and a unique process technology that allows them to take in a wider array of inputs beyond just palm oil, for example, allowing the company to sustain higher levels of profitability versus their peers.
Again, our approach, which is looking to identify individual stocks where there is characteristics of acceleration and sustained growth and where that’s not reflected in expectations—we have no shortage of opportunities.
Get additional insights in our latest Investment Outlook.
Senior Portfolio Manager Trevor Gurwich explains why the larger opportunity set and domestic focus of global small-cap equities make them well positioned to weather market pressures in the current environment.
Monthly analysis of the global bond market.
Senior Portfolio Manager Patricia Ribeiro explains how adding small-cap stocks to an emerging markets (EM) allocation may improve returns, provide portfolio diversification and reduce overall portfolio volatility.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
Portfolio managers are not licensed by the Hong Kong Securities and Futures Commission to perform any regulated function in or from Hong Kong. Furthermore, none of the portfolio managers are located in or operate in or from Hong Kong.
American Century Investment Management, Inc. is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services it will provide and it is regulated by the SEC under US laws which differ from Australian laws.