subject: Investing Legend Visits New Zealand [print this page] It is 18 years since Dr Mobius was in New Zealand and on this trip he was only here for 20 hours. The sprightly and very personable 72-year old managed to squeeze in a 2-hour presentation to over 600 people, including myself in Auckland, a couple of media interviews and a working lunch with a group of directors and CEOs from a range of leading NZ companies.
Dr Mobius is Executive Chairman of Templeton Asset Management. He has managed the Templeton Emerging Markets Investment Trust since it listed in 1989. This fund is listed in London and in New Zealand. He also manages other funds and is responsible for US$30 billion of client money. He has been investing in emerging markets for 30 years and is now regarded as the world leader in this field.
His fund has appreciated 18 fold since listing, which equates to an annual return over the past 21 years of around 15 per cent a year. Over the past decade it has gained 12 per cent a year in NZ dollars, trouncing the broader global markets MSCI index which has fallen 3.0 per cent a year over this time.
Emerging markets have indeed been the place to be over the past decade and Mobius and his team of 40 analysts and managers have delivered returns well above the market. But Mobius is the first to point out that this extra performance comes at a price.
Emerging markets can experience ferocious bouts of volatility. In 1994, 1998 and 2008 emerging markets, and the Templeton fund, fell by 50 per cent in a matter of months as global market weakness hit emerging markets hard.
Mobius is a strong believer in taking a long-term perspective when investing in shares. His fund holds shares for an average of five years, which is a much longer holding period than used by most other fund managers.
Mobius says that it is always better to buy after markets have fallen. He did caution though that getting this timing right is always very difficult, and in his view, the fact that emerging markets spend more time rising than falling, means that investors with a long term view should not be too concerned about market timing.
He backed up this point by presenting a chart showing that emerging markets had spent 18 of the past 22 years going up, and only four years in total going down. On this basis he argued that while volatility will always be a fact of life when investing in emerging markets, investors who are investing for the long term can invest at any time with a reasonable degree of comfort that over the longer haul, markets in this region should rise.
Mobius also identified the vast growth in money supply and in the use of derivatives as two major issues facing markets at present.
Central banks around the world have addressed the financial crisis by slashing interest rates and pouring money into their respective economies. This has driven sharemarkets upwards because people have sold their cash investments to buy shares, which offer higher returns and more income. Any future increase in interest rates poses a potential threat to markets as it could reverse this trend.
Mobius is far more worried about derivatives, which he regards as a major threat to the stability of the financial system. Derivatives are investments like futures and options over shares, bonds and currencies.
He estimates the total value of derivate contracts on issue today equates to an astonishing US$591 trillion globally. Compare that to the total value of the worlds sharemarkets of US$36 trillion or the total value of world GDP of US$60 trillion.
Mobius regards these derivatives as very dangerous, and he regards their use by speculators, hedge funds and investment banks as one of the primary causes of the recent financial crisis. In his view, their use should be more heavily regulated to help avoid a repeat of the events of 2007 and 2008.
The underlying reason he believes emerging markets will do better is because their economies are growing four times faster than developed economies.
A major factor developing markets have in their favour is the fact that they have far more people. China and India alone have a combined population of over 2 billion offering huge potential for growth.
Despite the relative attraction of emerging markets, Mobius research shows that most investors around the world still have only a modest proportion of their share portfolios invested in these markets.
He acknowledged that all investors have a natural home bias as we prefer to invest in our own local market. This is a mistake, he said, pointing out that if you look at annual returns from world markets over a 20 or 30 year period, very rarely do you see the same market at the top of the list more than once. He believes diversification is the one free lunch we get in investing and therefore we should have our portfolios spread across a range of markets.
