Visits to open-outcry market in Zimbabwe typical for this high-flying — and much flying — fund manager
Zimbabwe might not be in every manager's portfolio, but Laura Geritz doesn't invest in the usual markets.
The African country, probably best known for its hyperinflation in the 2000s, might not seem to be the best place to look for stocks. Shares are still traded in an open-outcry market, which Ms. Geritz describes — having seen it herself in action — as a group of men sitting around a table. Some stocks trade only for a minute or two. Some days, the exchange is open only for an hour. It can make life difficult for a fund manager.
Still, Ms. Geritz, 40, portfolio manager of the $318 million Wasatch Frontier Emerging Small Countries Fund (WAFMX), has been able to find value in companies such as Delta Corp. (DLTA ZH), a brewer and soft-drinks company.
Zimbabwe is just one of the 24 countries to which Ms. Geritz has traveled since the fund was launched in January 2012. In all, she estimates she's flown over 150,000 miles in the past 15 months, looking for high-quality growth companies with strong cash flow.
The frequent-flier miles have paid off so far — at least for shareholders. In its first full calendar year, the fund was the top performer in the emerging-markets category at Morningstar Inc. It had a return of 36% versus a loss of 6% for the average emerging-markets fund.
SURVIVOR COMPANIES
The regular visits to frontier and smaller emerging-markets countries have taught her something else about the companies there, or at least the ones that make it into her portfolio.
“They're the survivors,” she said. “You tend to get really good operators when they have to grow their companies through very difficult conditions.”
When Ms. Geritz finds a company she likes, she isn't afraid to make a sizable bet on it. The top 10 stock holdings as of Dec. 31, which include a couple of chocolate producers and brewers, accounted for 30% of the fund's total assets.
The appeal of frontier markets isn't that much different from the far more popular emerging markets, Ms. Geritz said. The countries have the same emerging-middle-class phenomena, and governments with very little debt. They're just somewhat behind on the development curve.
“You can really find great macro growth stories in Africa,” she said. “Opportunities in sub-Saharan Africa are phenomenal.”
The companies also tend to be less correlated with global stocks because the majority of business is done locally rather than internationally, Ms. Geritz said.
“They're more isolated,” she said. “There's much higher insider ownership in the companies. There are no [exchange-traded funds], so you don't get hot money coming in and out, and there isn't a market for short selling.”
The pace in the frontier countries are showing signs of picking up.
The trading volume in Kenya, for example, has grown 20 times in just the past year. Zimbabwe expects to have an electronic trading exchange in the near future. All of these things should help with liquidity, she said.
Even though the frontier fund is new, Ms. Geritz isn't new to emerging markets. She's been the co-portfolio manager of the $1.8 billion Wasatch Emerging Markets Small-Cap Fund (WAEMX) since 2009. Over the three-year period ended March 18, that fund has seen a 12% annualized return.
