A concentrated portfolio of long-term market leaders defines the award-winning overseas equity approach of Richard Jenkins, chairman and managing director of Black Creek Investment Management Inc.
"What we've learned," says Jenkins, "is you can never tell where and when the next crisis is going to come from. A leader in its field has the money to reinvest, to grow, to keep its position strong, and to survive whatever the environment throws at them."
Jenkins was the recipient of Morningstar's Foreign Equity Fund Manager of the Year at the 2015 Morningstar Awards. He is the lead portfolio manager of CI Black Creek International Equity.
The research process, carried out by a six-member team including Jenkins, entails whittling down a universe of more than 5,000 stocks to a select portfolio of 25 to 35 holdings. Black Creek favours market leaders that are profitable enough to be able to generate free cash flow to give back to their shareholders.
"I'm looking for global leading companies at substantial discounts to what we think they're worth," says Jenkins. "Three years ago, they were cheap in Europe, so that's why you see a large weighting (61%) in Europe. That's changing and much more of the ones that are inexpensive are in Asia and some in South America, so stock markets have come off a lot. You'll probably see us buying companies in those parts of the world over the next two to three years."
Black Creek's criteria for evaluating the future prospects and market share of a company includes its management, hiring practices, corporate culture, long-term vision, technology, industry structure and taxation, among others.
"There are up to 10 to 20 companies in any industry," says Jenkins, "that may or may not be good investments, but they don't generate enough cash to provide a return. When you look at the world in those eyes, the number of companies you can consider shrinks very, very quickly."
If you look at a business over a long period of time, you can figure out who is really growing, "versus who's just on a surf board riding the waves, and I'm not interested in those guys," Jenkins adds.
Black Creek's managers are patient investors. For example, after more than 20 years of visits to China, the team didn't start investing directly in Chinese companies until about three years ago. Previously, the team thought that China's growth was too export-oriented and capital- intensive, and unsustainable.
As the Chinese economy shifted toward being more driven by domestic consumption, Black Creek added China-based Anta Sports Products Ltd. (ANPDF) to the portfolio. Jenkins says Anta, though not the market leader in sporting goods in China, is close. It ranks third in revenue and second in terms of volume. What they offer to their customers in China, says Jenkins, "is 80% of the quality of Adidas AG (ADDDF) or 
Nike Inc. (NKE) at 50% to 60% of the price."
Anta has been growing its revenues at double-digit rates in recent years even though Chinese economic growth has slowed, says Jenkins. "That's a good example of what is a negative environment where the stock has done wonderfully well for us. It's all about the individual company."
Jenkins says he is not concerned about the recent headline risks about investing in China. "We're not really worried per se," he says, since the fund isn't exposed to steel, manufacturing, building materials, real estate or banking in China. "But that said, it doesn't stop people from selling the whole market," he adds. "So I'm worried about that, but all I can do is make sure that we own the right companies. And if they go down in prices that don't make sense, we'll buy more."
A recent purchase is the Japanese-based Daikin Industries Ltd. (DKILF), a leading global player in air-conditioning systems. Historically the company has specialized in ductless air-conditioning. "That's a very specialized technology," says Jenkins. "Two Japanese are the leaders in it, and Daikin is by far the market-share leader. It's an example of a company investing for the long term and the share price got very inexpensive because people were worried about growth in China, where Daikin is the leader."
Another holding, the French-based hotel company Accor SA (ACCYY), is the European market leader in hotels, says Jenkins, adding that it's also the leader in Brazil and Australia, and in parts of the Middle East and Africa. "They've done wonderfully well, the share price had gone up and we sold most of our stock." In a contrarian move, Black Creek added to its position at reduced prices in the wake of the terrorist attacks in Paris.
Demographics plays a factor in the fund's holding of Swedish-based Svenska Cellulosa Aktiebolaget (SCA) (SVCBY), primarily a producer of toilet paper, sanitary napkins and incontinence products. "They're one of the market leaders globally in adult incontinence products," says Jenkins. "Obviously demographics in mature markets are leading to good growth and the sophistication of that market."
As well, Jenkins views SCA as a leader in research and development in terms of quality, absorbency and comfort. "These are all the things you compete on," he says, "as well as price and brand."
