Active Insights

Finding Opportunities in Emerging Markets with Brian Freiwald

May 24, 2021 Putnam Investments
Active Insights
Finding Opportunities in Emerging Markets with Brian Freiwald
Show Notes Transcript

In this episode, Chris speaks with Brian Freiwald, Portfolio Manager of Putnam Emerging Markets Equity Fund.  During the conversation, they touch on many topics, including:

  • Why Emerging Markets are a good place to be investing, both now and long term
  • ESG investing in Emerging Markets
  • The lasting effects of Covid-19 on Emerging Markets, and the opportunities it created
  • A day in the life of an EM PM
  • How Brian utilizes research and his analyst team when implementing new ideas 
  • Technology in Emerging Markets
  • Latin America’s growing role in Emerging Markets

 

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This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a professional advisor before making investment and financial decisions and for more information on tax rules and other laws, which are complex and subject to change.

 

The S&P 500 Index is an unmanaged index of common stock performance.

 

Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.

 

All funds involve risk, including the loss of principal. You can lose money by investing.

 

To view additional information including performance and holdings, please visit the Putnam Emerging Markets Equity Fund page found on putnam.com. 

 

Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. 

 

Putnam Retail Management                                                                                       AD1659601 5/21

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Putnam Retail Management AD2557752 11/22

Active Insights

Putnam Investments


Episode 2

Patrick Laffin: Welcome to Putnam Investments Active Insights, a podcast series hosted by Chris Galipeau. Chris is the Senior Market Strategist in the Capital Market Strategies Group at Putnam Investments. Each episode, Chris has an in-depth conversation with a different Putnam portfolio manager to share timely insights on the markets and global economy.

 

Chris Galipeau: Thanks for joining us everybody. And welcome to the Putnam Active Insights Podcast, I'm Chris Galipeau, Senior Market Strategist at Putnam, and our guest today is Brian Freiwald, Portfolio Manager of the Putnam Emerging Market Equities Fund. And so we're going to talk about everything EM, thanks for joining us, Brian.

 

Brian Freiwald: Thanks, Chris, super excited to be here!

 

Chris Galipeau: It should be great. I thought about going through your background, then I thought it was a much better idea if I have you walk us through where you went to school, how you ended up here, and why you're interested in picking stocks.

 

Brian Freiwald: Yeah, absolutely. Myself, I've been a stock junkie my whole life, I was just so fortunate to fall into equities at about 12 years old. So, I would go over to my grandfather's house and we would read the business pages together while my cousins got into trouble and we bought our first stock together, Disney and he split the profits with me $500, which we put towards my college education. And from there, I was completely hooked, I worked a lot in middle school and grade school, working odd jobs, and just put it all into the market. So by the time I was 16 or 17, I had $30,000 in the stock market, which I used to fund my undergraduate education, and then from there, it was just really a battle to get a job on the buy side, I worked a couple of years in accounting got my CFA designation, worked at an investment bank then private equity, then got my MBA at University of Chicago, and then over a decade ago, I got my dream job here at Putnam on the Emerging Markets team, and been here ever since.

 

Chris Galipeau: So, the first question I have is, when you were investing when you were a teenager, were you investing in EM?

 

Brian Freiwald: I wasn't investing in EM and the asset class wasn't that developed at the time, just kind of made some crazy bets, but SiriusXM was big at the time, and other high flying tech stocks like that.

 

Chris Galipeau: That's awesome. Alright, a couple of quick questions. Favorite food?

 

Brian Freiwald: So, you know me, I'm a health junkie, I eat the same thing every day, I have a Sweet Green salad, the exact same one, five, days a week, but when I'm not doing that, I would say Goldfish crackers, so you know those containers, you could get from Costco, the giant ones. I could eat a container of Goldfish crackers and in a week.

 

Chris Galipeau: Can you eat more Goldfish than your kids?

 

Brian Freiwald: I don't share it with them.

 

Chris Galipeau: That's awesome. I wouldn't have guessed Goldfish Crackers. Favorite music or a favorite artist?

 

Brian Freiwald: I like a little bit of everything. Growing up, it was Sublime, big Dave Matthews Band fan, big Tom Petty fan. So those would be a couple that I would throw out there.

 

Chris Galipeau: Your favorite work out, your choice. What do you love?

 

Brian Freiwald: So, I got pretty into CrossFit five or six years ago, and still do that two days a week here at cross-fit Southie... Out of Boston.

 

Chris Galipeau: Awesome, alright, let's shift it and talk about EM, let's talk about stock picking, and I think it is very timely here because we've talked a lot about it with our clients in the last probably six to eight months, and I think it's good for me it would be good for me or helpful to set the framework here, and one of the things that I want our listeners to know is back about a year ago, March, April S&P was off 30%, 35%, all markets were off significantly, right, fear factor through the roof. You were almost like one of the lone voices in the woods, pounding the table... You're legit. Pounding the table. Bullish EM, I thought we could start with, why are you so constructive there? And kind of walk us through the last year, and I know you're still constructive, and so I'd like to hear just about the operating thesis, why are you pounding the table on EM and you were... And you're dead, right.

 

Brian Freiwald: So, Chris, I was just pounding the table on the mark at that time, having seen historical selloffs, and it doesn't matter whether it was the S&P 500 or emerging markets. So kind of the way I thought about it is when you analyze past episodes, it usually takes five to seven years to get back to the peak after the sell-off, there was a 30% upside to where we were in February, so let's just say we had an average recession, now you have 30% upside over five years, so that's a 6% return plus a 2% dividend yield, so even in a worst case scenario, you're getting an 8% total shareholder return for the next five years. So that's what really got me excited about the sell-off is just being a student of history.

 

Chris Galipeau: We did the same exact thing in our role in talking with our clients, and it was using the same sort of data set, so just looking back at history on what happened and whether I used high frequency economic data or sentiment data, or in this case, we use both, and just looking at history, very rarely now, of course, this was the fastest bear market in history. I've never seen that before, but still, it applies, and there's a great line that I love, and I have it up on my computer, written or said by Jesse Livermore, back in the 20s, which goes something like, markets don't change, the players change and the names change, but human behavior never changes, and that's I think probably reflecting some of that too, and you can see that with experience that opportunity arises and becomes rushing at you. Alright, so fast forward now, you were bullish, done, still constructive now I know your still bullish EM, so I would love to hear is, in your mind, the investment case for EM over the intermediate to long-term, right, three, five, 10, 20 years, you... Why should people put money in EM for long periods of time?

 

Brian Freiwald: Yeah, absolutely, so the US accounts for 16% of world GDP, PPP adjusted and shrinking. So, if you're not going to put all of your eggs in one basket in US equities, why not diversify into emerging market equities where the future of growth in the world is so I think there's two things that drive stocks... Valuations and earnings growth. So, let's talk about both of those. So today, in contrast to this time last year, valuations in the US are expensive, the S&P 500 trades at 22, 23 times and trade at four times price to book. I like to look at price to book today given the distortions to earnings associated with covid, so in contrast to that four times price to book EM trades at two times, which is basically... It's historical average, so the US is twice as expensive, and it also was trading at 100% premium relative to history, so there's a lot of value still today in emerging markets, so I'd like to give you a good kind of case study on this or an example so Apple and Samsung five, 10 years ago, they used to trade at parity, in the mid-teens, P/Es. Today, Apple's re-rated from 16 times earnings to 29 times earnings. Samsung still trades at 11 times earnings, and I believe both of these companies are going to grow earnings per share at about the same rate, so Samsung is a great value idea and accounts for 5% of the portfolio. Now, let's talk about then the growth side of the equation, while it's well known that GDP growth in EM is going to grow fast or so on a normalized basis, about 5% versus 2% in the developed world, what's really different today than the past is all the innovation that's coming out of places like North Asia, which is producing more patents and more PhDs than the US in Europe combined. And so, this is where I think some of the leading companies in the 2020s and 2030s is going to emerge. And so, we're seeing that today, so if you look at where unicorns are forming, so as you know, unicorns are startups that have a valuation or market cap of in excess of 1 billion, there's about 300 of them in the world today, the number one country that hosts unicorns is the US with 150, but number two is China with about 100, and number four is India. So, the up-and-coming companies for the next 20, for the 2020s and 2030s, those are in countries like China and India. And I think the reason for that is pretty obvious and that is scale, it's one of the most basic concepts of Economics and how we think about investing in companies is scale, and so China has 14 billion people, India has 14 billion people, and that scale gives you the ability to create these very large dynamic multinationals, now that you have this super educated workforce in those economies.

 

Chris Galipeau: Do you have any concern near-term about the way... So, we were talking about the coronavirus just before we walked into the room, we were talking about India, is there any concern that it's hitting these countries a little, maybe a little harder, or the staying power seems a little more significant there, I think about Brazil too. And I ask that because I wonder if that's got anything to do just with the year-to-date performance, little couple hundred bps relative to the S&P, is that... Are you concerned about that at all?

 

Brian Freiwald: Sure, we can talk about why I think the under-performance has happened, but with regards to covid, I would say it's kind of the tail of two stories, so you have north Asia, which accounts for today, over 70% of the index that's, Korea, Taiwan, China, and they have handled that much better than the rest of the developed world, and then as you mentioned, sadly, and unfortunately we have that other 30% buckets, the Brazil and India, which are really still struggling through the covid crisis, so the way we think about investing in companies in these countries is very different.

 

Chris Galipeau: That makes sense, it just occurred to me, and I didn't know if that was a rational way to approach it, to think about if some of the under-performance might have been from active managers saying, maybe these economies are going to take a little longer to hit the juice and expand real GDP because of that, so... But you brought up an interesting point, I think, is the question that we're asked a lot, we have a constructive view on EM... You're obviously our lead EM PM, easy for me to say. Let's talk about where we are here year to date... Is this just the case of EM pulling back a little bit after a big move, is it the SOEs that are contributing to the return... What's your view on that?

 

Brian Freiwald: Sure, so it hasn't been a great start out of the gates, but I would say emerging market equities were flat or up 1% in the first quarter versus the US market up in an amazing 10%. So, this kind of goes back to the original thesis, US stocks have just gotten more expensive, EM's valuations haven't changed and the growth outlook for those two economies hasn't changed, so I think the value proposition is even stronger today. I think one thing that was a surprise on the macro front was the US dollar, now it was largely consensus heading into the year that the dollar was going to be weaker, and it strengthened a little bit. Why did it strengthen? The US tenure went from 70 basis points to 170 basis points, and what like five weeks, basically unprecedented, this led to three to four percent dollar weakness now, from here, we can debate and where this all ends up, but we're pretty close to normalization normalization is maybe it's the US 10 years, average 2% over the last five years. So, we're pretty close, so I think that was kind of a one-term blip, but there really is no change to the original thesis of attractive valuations in this accelerating earnings growth, so no change to the long-term story there.

 

Chris Galipeau: Do you want to pound the table, 'cause I feel like you want to pound the table here right.

 

Brian Freiwald: I do want to pound the table!

 

Chris Galipeau: Good, and we've been relaying and transmitting that message to our clients, and I think that it's a very compelling case. I think the listeners would love to know and hear from you, and then we'll get into stock stories and talk about sectoral allocations and that sort of thing, but I think they'd love to know... What's an average day for Brian Freiwald equity PM. How do you work with the team? How do you source and generate ideas? What time do you get up? And one of the things that I love about you and respect about you, not just your stock picking seal and your passion for it, which is obvious, you work long days, not to say that anyone else in this business or myself, doesn't... We all do, but because of the time variance, you work really long days, maybe walk-through Monday morning, Brian Freiwald, go!

 

Brian Freiwald: Yeah, so we'll walk through... Well, I guess maybe Tuesday. So, I actually got a little bit of a later start this morning because the team and I were up till 10-30, 11 having a call with a Taiwanese tech company last night. So left the house at 6:15 this morning. I live in the city, so I bike to work. While I'm biking to work, I was listening to a podcast of a Chinese tech company, not one of the ones we own, but just to kind of get a read across and learn, then when I got to the office at 7am, had a meeting with an analyst on our team, she's based in our Singapore office, and we talked about some of her recent work on one of our holdings, for half an hour. At the conclusion of that meeting, we had the Asia dedicated meeting where there's 10 other investors at Putnam on the call talking about big picture takeaways from the week, and that kind of led me to 9 o'clock... From 9 o'clock to 1 o'clock, I've just been reading basically all day about things that have gone on in my companies, I'm here for an hour with the honor of speaking to you and then get back and read for another four or five hours at my desk about our portfolio companies in some of our prospect companies, and then I have another late night tonight at 9 o'clock, Joseph and I, Joseph, another investor on the team, have a call with the largest solar glass manufacturer, which is based out of China.

 

Chris Galipeau: I think I'm glad you bring up the amount of time you spend reading, 'cause I think a lot of people who may want to get into this business or wonder what an analyst or PM does on any given day, greatly underestimate or don't even consider the amount of time that we spend reading and listening, and that takes up, as you just alluded to and walk the though takes up half your time every day.

 

Brian Freiwald: Yeah, I would say I read at least eight hours a day...

 

Chris Galipeau: Yeah, and I think when I was early as an analyst, I really had no idea that the way I was going to learn and listen to the cadence of a company over time and listen to the earnings calls in the reports, meet with the management teams, listen to other industry people, players, and other companies, and just read all the work that's done by the Street and industry sources and that sort of thing. Takes a massive amount of time, and I think that's under appreciated. That's great. Alright, so we're here with Brian Freiwald, Portfolio Manager of the Emerging Market Equity Fund. The symbol is P-E-M-Y-X, and we're about to get into the portfolio and talk about how you approach it, and a very common question, we got it again today on a call with an advisory team is, do you start at the country level and then try to pick names. Are you worried about the country weighting in the index, and I know that's not your approach, I know it's a bottom-up stock selection approach, so I'd love to hear you walk us through how you think about that?

 

Brian Freiwald: Yeah, so I would say it's truly bottom up that said today, we don't have significant country bets, and over time, we tend to have a tilt in higher quality countries, Taiwan, Korea, India, China, and underweight some lower quality a countries, if you will, the South Africa and Turkeys, as it's tougher for best-in-class companies to grow faster in some of these troubled economies, but at the end of the day, it's really a bottom-up process, today, we just happen to be most overweight, India, it's, I think about a 4% overweight. In the fund today and over time, historically, we've had a positive till to India, there's really a lot to like there about India's economy first, it obviously has an extremely large population of 1.4 billion, which again gives us this concept of scale that we talked about too. We're starting at such a low base per capita GDP in India is $3000. Now, what that basically means is that if you're a worker in India, you make $1.50 per hour, essentially. So, when we look at that, we think it's not that hard to go add some value to get a worker to make $1.50 an hour to $3 an hour, and that's the way you could double the size of India's economy. In contrast, it'd be very challenging in the US or even for China to double per capita a GDP, so we think that could pretty easily happen in India.

 

Chris Galipeau: That's interesting. And those statistics are amazing, that's amazing to even think about. Alright, let's shift it and talk about individual names or concepts or themes that you're grabbing on to, and I know you've got looking at the sheet, you've got a pretty good slug of the portfolio in Tech, which is the number one sector, followed closely by consumer discretionary, and so maybe walk through some of the themes and some of the names there.

 

Brian Freiwald: So, the process... To sum it up, it's a two-part process, so we have a custom watch list of 500 to 600 businesses, these are high quality businesses with sustainable moats, strong market share gains above average sustainability characteristics, above average returns, so just attractive, good businesses. And from there, we buy the top 10% where we have a differentiated view and the long-term earnings of the business, and this is just where the hard work comes in of calling hundreds and hundreds of companies per year across the team, but... Yeah, getting straight to your question, let's just dig in, so you throw out technology, so China tech has been completely under fire, and it's actually one of the reasons that's driven the slight underperformance of EM in the last two months. China tech is down 30% versus the NASDAQ in the last two months, and that's 20% of the index.

 

Chris Galipeau: Is that BABA? Is it the political stuff in China with Jack Ma?

 

Brian Freiwald: There's certainly a lot to unpack there, but maybe let's just start off with how much value we see in the sector today and why we're so bullish on... Throw out some numbers here for you, Chris. So, the market cap of Amazon today is 1.7 trillion. And they do 35 billion in free cash flow. Alright. The largest tech company in China today is TenCent. So, they have 800 billion in market cap, 25 billion in free cash flow. This company is truly, truly amazing, they're the largest gaming company, chat service, mobile payments company and Cloud, all rolled up into one, they have one billion users that spend 25 hours on the platform, they are the king maker for everything in China, so then let's go down to the number two, Alibaba, so 600 billion market cap, they sell more goods than Amazon, they sell twice as many goods as Amazon, a little-known fact. So, we're now we're at 1.4 trillion in market cap. So, then we can move down to number three, just in case, Alibaba loses its footing, JD.com is number two with 120 billion market cap and five billion in free cash flow. Number two in e-commerce in China, and then rounding it out, number four is BIDU, the Google of China, if you will, their search product has ebbed and flowed, but what people don't know is they have this very strong cloud business, they're the number three in cloud, and they have more patents in AI than any other company in the world, and they have more miles driven in driverless cars within China than any other company in the world.

 

Chris Galipeau: I would have never guessed the second part of that, really?

 

Brian Freiwald: There's been a lot of change under the hood there, and that stock is incredibly cheap, so you add up those four companies... And we're at 1.6 trillion with 60 billion in free cash flow. So smaller market cap, double the free cash flow, and they're growing faster.

 

Chris Galipeau: I can see why you're excited. So that was great information on the companies. Some of that I knew, some of that I didn't know. Are you concerned at all about the regulatory environment and the potential risks there with some of these names?

 

Brian Freiwald: Yeah, so I would say the issue is, it's Big Tech, not China Tech, it's a big tech issues. If you look, Google has been fined 9 billion dollars by the EU. So, Baba was fined 2.8 billion, whatever that was, last week that's completely immaterial, that's less than 50 basis points of the market cap of the company. Congress has pulled Jeff Bezos and Mark Zuckerberg in front of Congress and absolutely torn them apart, so the narrative really is no different in the US and China, the anti-competitive talk, the fines, it's a big tech problem, it's not a China versus the US problem. The last thing I would say here though, is I would say the Chinese government did go after Jack Ma a little bit, so we kind of have to take him out of the equation, but people still really associate Jack Ma with Ali baba. Jack Ma doesn't work at Alibaba, he's not on the board of Alibaba, he still owns 3% to 4% of Alibaba. And the tie now is that Alibaba owns ANT financial, but now, given what's occurred with ANT financial, that business is valued at maybe 100 billion market cap, so you have Alibaba economic consideration of 30 billion market cap versus their 600 billion market cap of the company. So, it's completely immaterial and in the price today, which is why you saw the stock pop 8% or 9% on the day.

 

Chris Galipeau: Good example here too of a well-prepared investment management team potentially being able to take advantage of price dislocations on news that might seem material when it comes across Bloomberg, but financially, it's probably not... Or it might not be it the whole thing, that whole conversation around regulation and big tech, I remember when I started in the early 90s, we had the same thing happened here with the Wintel consortium was Microsoft Intel and Dell were the three massive players, way before Google, Amazon, even AOL to date myself. And I remember that dragging on for probably a decade, and I can't remember exactly what happened, maybe the stocks were held back a little bit, but take Microsoft for an example, now new all-time high here in the last week, and so I have no idea how it's going to play out with some of the big names that you just referenced, but a lot of times I feel like that is a great cause for concern, maybe at the headline level, but the actual impact seemingly, hasn't been that significant, and it's hard to say what's going to happen in the future, but you lay out a good case there.

 

Brian Freiwald: That's what gives us confidence, we believe stock prices follow earnings and the impact of some of these actions is immaterial to the earnings power of this business, and as we move to 2023, I think some of these headlines will fade away.

 

Chris Galipeau: Well said, that’s exactly right, and that's how you should think about it. And that is what matters over time, in addition, interest rates, but it's the growth of earnings over time that drive stock prices. Period and end of story. Alright, you wanna talk about some new names or some things you've in your process of turning over rocks from 5 AM to midnight every day. What's popping up on the radar?

 

Brian Freiwald: Sure, so we mentioned India, one of the newer names to the portfolio, a top 10 position that we're really excited about is Apollo Hospitals, so it is a six billion market cap ecosystem in India, and so they have 10000 hospital beds, 4000 pharmacies in the leading digital app so you put that all together and it's the leading healthcare company in India and has a market cap of 6 billion, what's the market cap of CVS or Walgreens that are shrinking all... Well, over 100 billion, we had last month, the honor of meeting with one of the family members that owns the company as well as the CFO and walk through the numbers and gained a lot of conviction in our thesis on the company, there's really a true transformation given this new management, that team that's come in and changing the way this business is being run, they're de-leveraging the balance sheet, they're focusing on their higher return, higher margin businesses, and as a result, we think earnings per share are gonna be 20% or 30% higher than the market expects two in three years out.

 

Chris Galipeau: Also, a good example of how you approach probably every single name in the portfolio with varying degrees, right, forward growth, but any other stock story you wanna talk about, anything that as you fired up more than normal?

 

Brian Freiwald: So, I think often Latin America gets glossed over. And another name, it just happens, this one happens to be in technology as well, is Mercado Livre, and so the way... This is basically the Amazon of Latin America. And the way I like to think about this story is it was only in 2015 that Amazon surpassed the market cap of Walmart in the United States. Now, Amazon has 3 to 4X the market cap of Walmart. Now in contrast, Melle, which is the leading payments logistics and e-commerce company in all of Latin America, has a market cap of just 70 billion. Walmex, which is the traditional retailer just in Mexico, has a 50, 60 billion market cap. So it's still the same size as a traditional retailer in just one of the countries they operate in, so this is like the big picture 10-year story, but what we do is we really get into the weeds, and why I'm so excited about this business is just that our thesis on payments and logistics is playing out, so we spent a ton of time studying the logistics network with that they're building out in Brazil and Mexico and understanding the payments ecosystem that they're creating, and these are two parts of the thesis that I think is completely missed by the market and what's gonna drive near-term numbers higher and the long-term story.

 

Chris Galipeau: Yeah, can you talk a little bit more about the logistics part of that, 'cause I wouldn't have guessed that, not that I haven't looked at Melle in 15 years, but I remember buying that a couple decades ago. What do you mean when you say the logistics?

 

Brian Freiwald: Sure, so I guess one of the ways that Amazon... People think Amazon makes money reselling stuff online, but today actually they make most of their money, most of the value of their business comes from the take rate and logistics that take rate in advertising as well as that the Cloud business. So Melle is where Amazon was 10 years ago, and just kind of taking this take rate on reselling stuff, and what they're doing today now is building the infrastructure that Amazon's developed in the US, and so there's the advertising piece in the logistics piece. So one of the reasons why e-commerce hasn't really taken off and Latin America, the way it has in the rest of the world, is because of logistics, they don't have a post office that's reliable, in fact, every single year the post office goes on strike for two weeks in Brazil for two weeks, and people don't trust that stuff's not gonna get stolen in for their front door credit card penetration is low, so what Melle has to do is tackle all of these problems that we take for granted in the US, but because it's a harder problem. It creates a stronger moat for that business. And so, what Melle has done specifically on logistics is three years ago, nothing was delivered through their infrastructure and today, that's over 50% in Brazil, they're buying airplanes, they're integrating logistical assets, and these are key competitive advantages versus peers.

 

Chris Galipeau: That's great. Shift gears here with maybe the final concept, ESG is important here at Putnam it permeates essentially every asset class and is integrated into how we think about securities, whether it's a stock, whether it's... We're buying bonds. How do you incorporate it? At least at a high level, how do you think about it? What's in your view in the ES and the G? Is there one that's more important than the other... Is the G really important to you, or how do you use it?

 

Brian Freiwald: Yeah, absolutely. So first, I would say at Putnam, we're truly blessed to have Katherine Collins, who's a real thought leader in the industry, and it's been a great partner and helped me out a lot, but to answer the question, I would say, number one, we invest in good managers and these managers run companies effectively and ethically, number two, I would say ESG is even more important in EM than it is in DM, given the rampant corporate governance issues. So, we spend a ton of time getting on the G side of the equation, getting to know the CEO, how he's paid, what other assets he's had, what other companies has he run in the past, that is an incredibly important part of it. And then we also do spend a fair amount of time on the E... There's a huge change in emerging markets in China, specifically this push to zero net emissions, and so we are bullish on Green tech, we own the largest solar glass manufacturer, we own the largest EV battery producer, and then on the other side of the coin, where we have been under-weight some of these sin stocks and energy, if you will, and it's not because we're necessarily negative on them, we believe that the earnings aren't pricing in these risks, so the gap earnings are not pricing in these risks. So, for example, today we saw the headlines about big tobacco in the US government going off on big tobacco, people think tobacco stocks are cheap, they're really expensive because they kill people, and that means there's a negative E on tobacco companies. I just want to round this out with a stock story, so as I mentioned, growing up, I cut a lot of lawns, and one of our favorite stocks is Techtronic, so they're the maker of Milwaukee and Ryobi power tools, which I hope you guys all have in your garage, and they've developed this battery platform that's incredibly, incredibly powerful, and as this is evolved and costs have come down, that's moving out of drills and into outdoor lawn equipment, and so this is what's gonna drive the next leg of growth, what's gonna drive this company to double over the next four years, in our estimates, for example, so did you know your lawn mower or two stroke lawnmower, when you mow your grass admits more CO2 than driving in and out of Boston five days a week. I think that California could ban two-stroke lawn mowers within the next 10 years, and Techtronic has the technology to be the leader in this new category, which is 0% of the revenue today, but could be 50% in five years.

 

Chris Galipeau: You've told me the story before and now, so you know, every time I walk through Home Depot and I see the battery power tools, I think at you, he's the Emerging Market Equity PM and I'm in Home Depot looking for something, and there's Freiwald over in the corner. Alright, that's great. Those are great examples, and I think the ESG thing is important, is significant, and you mentioned Katherine and Stephanie and the effort there, and I think certainly in the last 10 years, that has become much more pronounced and much more ingrained in the process in the way for instance, you and your team think about... Think about picking names, and I think it's only gonna increase... Alright, we're up against it in terms of time here a little bit, I think you actually laid it out very well, or would you add anything to you to what you've said to start us off with the long-term investing case for EM or do you think you captured it there?

 

Brian Freiwald: Yeah. So, I would just kind of reiterate those three points, the US is only 16% of world GDP, so why put all of your eggs in one basket? We could have higher tax rates in the US tomorrow, we could be more aggressive on regulating big tech in the US tomorrow, so a lot can change. So, diversity is your friend, and so I think that's the clearest case for emerging markets, but then in terms of the outlook for EM, go back to the two points that I've been hammering on is valuations are more attractive on an absolute and relative basis in EM relative to DM, and I think the growth is going to be faster, and that's the piece that's gonna finally play out, which we haven't seen over the last 10 years.

 

Chris Galipeau: Yeah, no question about it. Alright, that's great, Brian, thanks for joining us. I'm sure the listeners took a lot away from your comments, I do. Every time we get together and talk, and every time I listen to you at o clock in the morning, in the morning meeting. So, thanks for spending some time with us, thanks for being here. And to everybody out there. Thanks for listening. We'll be right back with you shortly with another Putnam Portfolio Manager.

 

Patrick Laffin:

Thank you for listening to Active Insights. For more information on Putnam Investments, please visit Putnam.com. All opinions expressed by the podcast host or podcast guests are solely their own opinions and do not represent the opinions or views and Putnam Investments or any affiliates. This podcast is not investment advice and is not intended as a recommendation to buy or sell any type of securities. This production is for informational purposes only.

 

Online Description
In this episode, Chris speaks with Brian Freiwald, Portfolio Manager of Putnam Emerging Markets Equity Fund.  During the conversation, they touch on many topics, including:

·       Why Emerging Markets are a good place to be investing, both now and long term

·       ESG investing in Emerging Markets 

·       The lasting effects of Covid-19 on Emerging Markets, and the opportunities it created

·       A day in the life of an EM PM

·       How Brian utilizes research and his analyst team when implementing new ideas 

·       Technology in Emerging Markets

·       Latin America’s growing role in Emerging Markets

 

 

This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a professional advisor before making investment and financial decisions and for more information on tax rules and other laws, which are complex and subject to change.

 

The S&P 500 Index is an unmanaged index of common stock performance.

 

Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.

 

All funds involve risk, including the loss of principal. You can lose money by investing.

 

To view additional information including performance and holdings, please visit the Putnam Emerging Markets Equity Fund page found on putnam.com. 

 

Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. 

 

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