A Deep Dive into Emerging Markets Value Investing with Christine Phillpotts

From Concert Pianist to Emerging Markets Guru

Christine Phillpotts's journey into finance was anything but planned. Initially aspiring to be a concert pianist, she realized the extreme competitiveness of the field and serendipitously discovered finance through a scholarship program. This unexpected turn led her to an internship at Chase Bank, sparking a fascination with investment management.

Supplementing her economics major with a psychology minor at Columbia University, Phillpotts delved into cognitive psychology, exploring decision-making biases and their impact on rational choices. This early exposure laid the groundwork for her later understanding and application of behavioral economics in finance.

Navigating the Financial Crisis and the Rise of Impact Investing

Phillpotts's experience during the 2008 financial crisis at Morgan Stanley provided a front-row seat to market turmoil. Working on the convertible debt desk, she witnessed firsthand the frantic activity as markets teetered on the brink of collapse. This experience underscored the fragility of the financial system and the importance of adaptability.

Following her MBA at Harvard, Phillpotts joined the Grassroots Business Fund, a newly independent impact investing fund. Focused on emerging markets, she traveled extensively, evaluating small and medium-sized businesses with both growth potential and positive social impact. This experience provided invaluable insights into the unique dynamics of emerging markets and their resilience in the face of global crises.

Emerging Markets: An Untapped Reservoir of Alpha

Phillpotts's career reflects a consistent focus on emerging and frontier markets. Drawn to the inefficiencies of these markets, she recognized the potential for generating alpha through active management. "If everyone's going in route one, I want to go in route two, three, and four," she explains, highlighting her contrarian approach to investing.

Having spent a decade at AllianceBernstein managing emerging market strategies, Phillpotts emphasizes the importance of on-the-ground research. Regular travel, including four weeks in China last year, allows her team to gain deeper insights beyond the headlines and assess both opportunities and risks.

Addressing the challenges of investing in China, Phillpotts acknowledges the inherent risks associated with government intervention. She stresses the importance of understanding the government's incentives and aligning investments with their objectives to mitigate these risks.

Ariel Investments: A Value-Driven Approach

Phillpotts joined Ariel Investments in 2023 to launch their emerging markets value strategy. The firm's long-term, value-oriented philosophy resonated deeply with her. She was also drawn to Ariel's unique ownership structure, where employees and board members own nearly 95% of the firm. This alignment of interests fosters a strong sense of shared purpose and reinforces the firm's commitment to its clients.

"We're eating our own cooking," Phillpotts states, highlighting the shared investment in the firm's success. This structure empowers employees to make a meaningful impact and aligns their efforts with the long-term goals of the firm and its clients.

The Future of Emerging Markets Investing

Despite the recent underperformance of emerging markets relative to US equities, Phillpotts believes now is the wrong time to capitulate. She points to attractive valuations, accelerating earnings growth, and the potential for US dollar weakness as catalysts for future outperformance.

Looking ahead, Phillpotts emphasizes the opportunity for both value and growth in emerging markets, particularly in Southeast Asia. She highlights markets like Vietnam and the Philippines, offering compelling growth prospects at significantly lower valuations compared to markets like India.

Advice for Aspiring Investors

For recent graduates interested in investing, Phillpotts offers valuable advice. First, embrace imperfection and accept that being wrong is part of the process. Second, "lead with a yes," and be open to new opportunities and challenges to maximize growth and learning.

Phillpotts concludes by highlighting the importance of the mosaic theory, especially in less efficient markets. Cultivating creativity, resourcefulness, and a detective-like approach to information gathering are crucial skills for success in the ever-evolving world of investing.