About 20kms off the west coast of Scotland the rock-island of Skerryvore hosts the country’s tallest lighthouse.
Rising some 48 metres high, the Skerryvore tower has been signalling danger to marine traffic in one form or another since 1844 in a treacherous stretch of coastline.
From 1790 until the lighthouse first flashed, the surrounding sea had claimed more than 30 known shipwrecks.
Skerryvore also provides an apt metaphor for investors plying the emerging markets trade routes where risk management is the watchword, according to Nicholas Cowley, a well-seasoned traveller in those parts.
Cowley has specialised in emerging market (EM) equities since 2012, most recently as partner portfolio manager with the Edinburgh-headquartered Skerryvore Asset Management.
“We recognise there’s choppy waters and plenty of rocks when investing in emerging markets,” he said.
But Cowley said if EM investors know where to “steer away” from danger, they can catch the “positive demographic tailwinds” expected to drive strong growth in the years ahead.
For Skerryvore, which formed in 2019 after the emerging markets team jumped ship from Janus Henderson, there a couple of early-warning signals that guide its investment strategy.
On tour in NZ and Australia late in May, Cowley said the manager sets course by both corporate governance practices and investor “alignment”.
“There’s a lot of lower-quality, poorly governed companies in EM,” he said, including some jurisdictions where “you can’t necessarily rely on the rule of law”.
Furthermore, Skerryvore looks out for companies where owner and investor interests align in a transparent manner.
The prerequisites screen out many state-backed Chinese companies, for instance, or firms whose owners hold other non-listed assets below that waterline that might sink ill-informed shareholders.
“We also look for resilient companies with strong balance sheets,” Cowley said.
And most of the EM action is underpinned by consumerism in countries where certain brands stand to benefit from rising middle-class incomes.
The Skerryvore portfolio has “a sector bias to consumer companies supported by domestic demand”, he said.
However, the firm also invests in some developed market stocks that are being swept along by EM consumer currents in an approach that brings another layer of risk management.
For example, Cowley said the Dutch brewer, Heineken, makes the portfolio due to its strong following in EM regions including Mexico and Vietnam.
Skerryvore has a strong taste for Coke, too, with holdings in four EM regional bottlers licensed to the US fizzy king.
The U$1.6 billion manager runs one core strategy including in an Australian unit trust format launched in 2020 – and another slightly more liquid version for institutional investors – with about 50 underlying stocks that turnover on average about 20 per cent every year.
“We’re patient investors,” Cowley said. “We wait for opportunities.”
The original Skerryvore lighthouse operated continuously from February 1844 until March 16, 1954, when a fire caused serious damage: however, the structure was quickly repaired, eventually switching to an automated system in 1994.
A recent arrival on NZ shores (although the precedent Janus Henderson team was known), Skerryvore has landed a few clients here including Rātā Community Trust the Tauranga-based TECT on recommendations from consultants such as two Australia-based firms – JANA and Frontier – and Mercer.
The manager is part of the Bennelong Funds multi-affiliate family (or BennBridge as per the UK subsidiary).