Global Emerging Markets All Cap

Rasmus and Rizi are supported by a broader team of investment analysts, with an average of 14 years of investment experience and 8 years tenure with the team. All 15 members of the FSSA investment team are analysts first and foremost, including the portfolio managers, and we spend the majority of our time meeting companies, writing research and seeking quality companies to invest in. 

How we invest

FSSA’s investment philosophy, which shares its genesis with SI, has remained broadly unchanged since the First State Stewart team was established in 1988. We focus on identifying quality companies, buying them at a sensible price and holding them for the long term. Most importantly, we invest our clients’ capital as if it were our own. As long-term investors and owners of businesses on behalf of our clients, we look for founders and management teams that act with integrity and risk awareness, and dominant franchises that have the ability to deliver sustainable and predictable returns over the long term.  

As a team, we conduct over 1,000 direct company meetings each year across Asia and other emerging markets. The most significant source of investment ideas comes from these company visits and country research trips. We find that our reputation as patient, long-term investors has given us unparalleled access to management, which allows us to gain valuable insights and a thorough understanding of the businesses we want to invest in. 

As a result of our long-term time horizon and conservative investment approach, our portfolios – and our performance – can look very different to the index. We shy away from “flavour of the month” themes (such as the current AI-driven boom), and instead look for high-quality companies that can deliver attractive returns for much longer than the market expects – and extend our investment time horizon to capture that advantage. When you own quality businesses, time isn’t a risk – it’s an asset. 

Our performance may lag in very buoyant or momentum-driven markets, but we usually compensate very quickly once such bubbles burst. Based on historical data, our long-term track record shows that our portfolios tend to perform better in “normal” markets (-15% to +15% returns over one year) and bear markets (more than 15% decline), than in steeply rising markets (defined as over 15% returns over one year). 

A smooth transition

Given the significant overlap in SI’s and FSSA’s investment philosophy and portfolios, we know all the holdings well. As part of the transition, we made a few changes to tilt the portfolio towards companies with stronger cash generation, higher returns and better long-term growth prospects. In general, we are adding to holdings in China, where we have found leading businesses like Tencent, with strong competitive advantages and attractive growth at reasonable valuations. We are reducing exposure to India, mainly in cyclical businesses like Tube Investments of India and Motilal Oswal, where valuations are expensive and the growth outlook has deteriorated. 

Below, we highlight a few of the key additions and disposals over the fourth quarter of 2025.  

New purchases:

Tencent Holdings is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services, e-payments/e-commerce and overseas gaming. Tencent has created an ecosystem of businesses which are unrivalled and should continue growing over the medium term. It has continued to develop new functions within WeChat (such as Video Accounts and Mini Shops), which should slowly improve monetisation and enhance the quality of the franchise. At FSSA, we have been shareholders of Tencent since 2005 and have consistently found the management to be effective long-term stewards of the business. In recent times, we have been impressed by Tencent’s AI strategy and its disciplined approach to technology investments, which aligns with our conservative view on AI capex spending. 

Sea is the largest e-commerce, fintech and gaming platform in Southeast Asia, with growing businesses in Taiwan and Brazil. The e-commerce business (75% of sales) is complex, but its model is focused on the lowest cost structure and being competitive on prices, which allows Sea to serve a layer of customers that no one else can touch, and profitably too. The margins are admittedly thin for now, but it seems like the hard work is done. From here, it should be easier to grow the business and unlock operating leverage. The management and the culture are worth backing, and execution has been consistently strong across all three businesses. 

Nu Holdings is a digital-only bank in Brazil with over 100 million customers. Founded in 2013, it has disrupted large incumbent banks thanks to its superior customer service and lower costs. There is strong alignment with the leadership team and a prudent lending culture. The company has achieved decent profitability while the growth outlook is robust, driven by increasing credit penetration and additional service offerings (such as secured loans and digital payments). 

Complete sales:

Milkyway Intelligent Supply Chain is a chemical materials logistics company in China. We sold out of the position on concerns about leverage and poor cash generation. 

Motilal Oswal Financial Services is a non-bank financial company (NBFC) in India. We sold out of a lower conviction holding to raise cash for better ideas elsewhere. 

Voltronic Power is a Taiwanese company specialising in uninterruptable power supply (UPS). We sold out of a lower conviction holding to raise cash for better ideas elsewhere. 

Performance and outlook

With our long-term investment time horizon, we tend not to pay much attention to short-term market fluctuations. We invest on at least a three-to-five-year view, though we often hold on to companies for much longer. In an industry rife with short-termism, we believe our long-term approach stands out from the crowd. 

What we have seen, over the past few decades, is that average holding periods for stocks have fallen from over eight years in the 1960s to less than six months today.  Yet this shift has come at a cost: it reduces investors’ ability to generate outsized returns that are materially different from the broader market. The reason is simple — as investment horizons shrink, so does the return dispersion between the best- and worst-performing companies. With less time in the market, investors end up tracking the index, not beating it. 

Emerging Markets: time horizons matter

MSCI EM Index -dispersion around mean return for top 10% top / bottom stock performers

Continuity and change

It would be remiss not to mention the significant changes that have taken place at Stewart Investors over the last quarter. After acting as careful stewards of our clients’ capital over many years, three of our colleagues stepped back from their portfolio-management responsibilities in August and left the business. While our team looks different now than it did when the quarter began, on a deeper level, nothing has changed: the philosophy and approach that has defined Stewart Investors since 1988 is deeply engrained and continues to define what we do. Our structure is flat. Every member of the investment team is first and foremost an analyst and our collective focus is on identifying high-quality companies, with resilient financials, guided by ambitious stewards.

This strategy’s new lead manager is Jack Nelson, who was formerly its co-manager. He joined Stewart Investors in 2011 and is the lead manager of our Global Emerging Markets Leaders strategy. He continues to apply the same principles to managing this strategy that have guided it since its launch, working as part of the same tight-knit group of investment analysts and drawing on the same common pool of investment ideas.

Activity

We added one new holding to the portfolio during the quarter. Ayala (Philippines: Industrials) is owned by the seventh generation of Zóbel de Ayala family and its interests span property, banking, car dealerships, renewable energy, and retail. Like us, the Zóbel de Ayala family focus on finding long-term growth opportunities. The Philippines appears to be rich in those opportunities. For example, while around half of Filipinos don’t have a bank account, lenders such as Bank of the Philippine Islands (BPI, in which Ayala is a major shareholder) are opening new branches, acquiring new customers, and promoting financial inclusion.¹

We sold several holdings where we had lost some confidence in our investment thesis. Vitasoy (Hong Kong: Consumer Staples) has struggled with supply-chain issues. This year, however, its shares have rallied in response to rumours of a takeover bid. This provided a good opportunity for us to sell the holding and reinvest the proceeds in companies where we have great of confidence.

We also sold home appliance manufacturer Zhejiang Supor (China: Consumer Discretionary). A subsidy programme introduced by the government earlier this year offers Chinese consumers financial incentives to trade in and upgrade their home appliances. This has helped to foster positive sentiment towards Zhejiang Supor. Looking longer term, however, the outlook for its future growth appears to be muted, so this appears to be a good opportunity to sell.

Elsewhere, we sold out of Hoya (Japan: Health Care) which, despite being listed in Japan, sells the majority of its products into emerging markets. We also sold Tata Communications (India: Communication Services) and Jerónimo Martins (Portugal: Consumer Staples). In all three cases, these companies’ shares appeared somewhat expensive given the growth on offer. We believe new ideas such as Ayala – as well as our other existing holdings – now represent better homes for our clients’ capital.

1 Source: World Bank Global Findex database https://databank.worldbank.org/source/global-findex-database. 2024 data for metric: account (% age 15+) which measures the percentage of respondents having an account at a bank or similar financial institution or using a mobile money service.

Looking ahead, we remain particularly positive on the prospects for high-quality companies in India. The central bank recently started cutting interest rates, which should support demand in rural India. Towards the end of the quarter, we attended a conference of Indian companies and were struck by how positive all of them were about the growth opportunities ahead of them over the next 10 years. In our view, this potential growth – and the size of the Indian market – should continue to offer powerful support to share prices. 

[1] Source: Financial Times, 30 June 2025 ‘US dollar suffers worst start to year since 1973’.

[2] Source: Straits Times, 21 December 2023 ‘China is world’s second-largest economy but its passport is ranked 63rd. Are things looking up?’.

Other new companies in India included Cholamandalam Financial Holdings (India: Financials) and Triveni Turbines (India: Industrials). Cholamandalam is another business associated with the Muragappa family, who we rate highly. Triveni Turbines is a leading maker of steam turbines.

We also added a position in Walmart de Mexico (‘Walmex’) (Mexico: Consumer Staples). With the market having taken fright from the elections of Claudia Sheinbaum (in April 2024) and then Donald Trump (in November), Walmex share price had fallen sharply. Despite this, we believe it remains a solid, dependable long-term growth story. The final new addition was BDO Unibank (Philippines: Financials) which is the largest bank in the country with a good opportunity to grow in the outlying islands and by developing its digital offering¹. We sold Koh Young Technology (South Korea: Information Technology), following a number of disappointments. We also sold Unicharm (Japan: Consumer Staples). While it has pivoted to making adult diapers in response to demographic changes, it has found this shift harder than it had originally envisaged.

While we are broadly positive on the outlook for emerging markets, we recognise that there is likely to be ongoing volatility for as long as worries about trade tariffs and global political tensions remain at elevated levels. Our task is to block out the short-term noise to focus on the underlying quality, growth and leadership of the companies we invest in.

[1] Source: BDO Unibank – Company Profile (as of 31 December 2024).