In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is Chetan Sehgal, lead portfolio manager of the Templeton Emerging Markets Investment Trust (TEMIT), which has a Morningstar Medalist Rating of Neutral.
Which Sector Shows the Biggest Promise in 2024?
I think the semiconductor sector may well rebound in 2024. The improvements in computing power with lower consumption of energy and miniaturisation leads to new applications being developed in addition to the emergence of generative language models which have the power to augment human capability.
What's the Biggest Economic Risk Today?
While there are significant geopolitical risks facing the world, and demographic challenges facing many countries, which have their own ramifications, in terms of economic risk, I would say the biggest risk stems from the significant increase in government debt over the last several decades which is now impacting the markets as the risk-free rate has started to go up. There is no visible way for governments to stymie this increase.
Describe Your Investment Strategy
The Templeton Emerging Markets Investment Trust (TEMIT) focuses on companies with sustainable earning power at a discount to intrinsic worth in a well-diversified portfolio. For us, we try to optimise the holy trinity of stock selection in the portfolio – profitability, growth and valuations. When evaluating companies for inclusion in the portfolio, we usually say that companies with a 1% higher sustainable margin often trumps a 1% higher current growth.
Which Investor(s) Do You Admire?
I admire George Soros for the clarity of his thoughts, Warren Buffett for the simplicity of his approach and the late John Templeton for his sense of purpose.
Name Your Favourite 'Forever Stock'
No stocks are forever – as we are only temporarily able and temporarily alive. One of my favourite TEMIT stocks is Taiwan Semiconductor Manufacturing Company (TSMC), whose chips are used in a wide variety of solutions including personal computers, automotive and smartphones. That has come as close as possible to becoming a forever stock. It has the strongest platform in an industry where being number two is not good enough. TSMC's strength has been supported by secular demand growth, as chips become smaller, more capable and consume less power.
Additionally, I admire companies such as Tencent, which is amongst the leaders in social communications, games, entertainment, cloud and payment services businesses in China that has innovated at scale and continuously reinvented their business model despite challenges in their operating environment and the hyper competitive nature of the Chinese market.
What Would You Never Invest In?
From a risk perspective, our funds avoid investing in companies that have weak environmental, social, and governance (ESG) attributes. We are especially cautious of poor governance standards that disregard shareholder rights.
Growth or Value?
Our paramount focus is on sustainable earnings – be it growth or value. We find growth is often overestimated, and for value patience is often tested. Being focussed on sustainable earnings is probably the best way to avoid the pitfalls of both strategies
House or Pension?
House – it gives peace of mind, a sense of belonging and helps one integrate with society.
Crypto: Brilliant or Bad?
Brilliant in concept but is still unproven and will take time to see any positive results.
What Can be Done to Improve Diversity in Fund Management?
I believe diversity and inclusion is essential to navigating the dynamic landscape in our industry. Attracting, developing and retaining a diverse workforce can lead to better firm performance, decision-making and client success.
Have you Ever Engaged With a Company and Been Particularly Proud (or Disappointed) of the Outcome?
Over the years we have successfully and unsuccessfully engaged with many emerging markets companies, some of whom have been successful at capital allocation and shareholder return policies. In one instance, in the case of a merger of a software services company with its real estate affiliate, we took a stance against the merger. It was later uncovered that not all was above board in the accounts.
What's the Best Advice You've Ever Been Given?
There is no bear market for good ideas. Therefore, one should continuously look for investment opportunities rather than wait for things to improve. When the markets are depressed one can find much better bargains.
What Would You be if You Weren't a Fund Manager?
If I wasn't in financial services, I'd probably end up being a historian, as I spend a lot of time trying to understand how we got here. I could also have been into software as well!
