Taking to the road in Turkey and Israel
‘When you set out on your journey to Ithaca,
pray that the road is long,
full of adventure, full of knowledge.’
Ithaca - Constantine P. Cavafy (1911)
Like travellers on the road to Ithaca, the best global share investors know that finding something valuable means taking to the road in search of knowledge – and opportunity.
On a recent overseas trip to meet with company management in Europe, Garry Laurence, Portfolio Manager of the Perpetual Global Share Fund extended his trip to Turkey and Israel and found some compelling investment ideas.
Good investors look beyond the headlines
For almost a decade, Turkey enjoyed exceptionally strong GDP per capita growth. However, over the past few years there has been a slowdown in GDP growth and an increase in unemployment. The Turkish Lira has fallen against the USD and the stock market's appreciation has slowed.
Far from backing away, Perpetual has taken a closer look at Turkey. We understand that weakness in an economy often throws up investment opportunities.
Shining examples of entrepreneurial management in Turkey
We recently met the chief financial officer of Garanti Bank. We regard Garanti as an interesting longer term growth opportunity due to the low levels of credit penetration in Turkey. In our opinion Garanti is probably the best managed bank in Turkey:
- it has a leading IT system. Their expertise in technology is evidenced by the fact that BBVA has taken Garanti's chief technology officer to head their integration of IT across the group
- it has a strong balance sheet with excess capital
- it has a strong entrepreneurial culture and the right incentives in place to help it lead the market in earnings growth.
The Perpetual Global Share Fund is currently an indirect shareholder in Garanti through a stake in the Spanish bank, BBVA, which owns 40% of Garanti Bank.
We were impressed by several companies in Turkey with entrepreneurial management teams. This included TAV (the owner of a number of airports) and Sabanci (an industrial conglomerate).
We have found that many management teams in Turkey have an entrepreneurial bent. This may reflect demographics - half of Turkey's 78 million population is under the age of 30. There is a strong culture of small business ownership within this younger demographic.
Flavours that blossom in Israel
The business has high barriers to entry, good organic growth rates and a management team aligned with the interests of shareholders.
In Israel, Garry and his team met with the chief executive officer of Frutarom, a global flavours and fine ingredients company, which has operations in 143 countries. ‘Next time you eat a hazelnut-flavoured chocolate or drink a can of coke, you will know that it is not Nestle or Coca-Cola that comes up with the ingredients to flavour the product but a specialised group of scientists working at a company like Frutarom,’ says Garry.
We like investing in companies like Frutarom. The business has high barriers to entry, good organic growth rates and a management team aligned with the interests of shareholders.
Meeting company management is crucial to our investment process
Our process is time-tested through varying market cycles and is based on in-house research and a deep understanding of company fundamentals, tested through numerous meetings with company management.
While in Europe, we met with the management teams of companies we are invested in: Volkswagen, Sanofi-Aventis, Michelin, Rolls Royce, Barclays, Lloyds, BBVA, Countywide, Julius Baer and Deutsche Boerse. They are all unique and exciting companies and have done well for us over the past few years. We are comfortable with our positions and the directions that these companies are moving in.
We also met with a raft of other companies, in order to seek out new opportunities. 'We have a number of ideas that we are currently working on and a number of companies that we are watching, waiting for their valuations to become more attractive before we invest,' says Garry.
Many wonderful companies can be found on the road
While global share markets can provide many bright opportunities, when we invest at Perpetual, we aim to:
- buy the highest quality companies at the most opportune time
- generate consistent positive returns for our investors over the medium term
As Garry notes, ‘Our aim is to own a collection of businesses like Garanti and Frutarom and watch them grow over the medium term. The trick is finding the right entry point when the valuation is attractive.’
Interested in learning more about the Perpetual Global Share Fund? Find more here.
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