Christine Tan, lead manager of Excel Emerging Markets, is a big believer in secular growth themes. “A lot of the themes I talk about to our investors are linked to consumption, such as education and health care,” says Tan, a portfolio manager at Excel Funds Management Inc.
For example, one of the fund’s top holdings is TAL Education Group, a leading provider of tutoring services in China. The company trades in the U.S. as an ADR under the ticker XRS.
“Around the world, all parents really want to educate their children. That’s a core priority,” says Tan, “but in emerging markets it was only recently that disposable income was available for this incremental spending.” TAL has done “fantastically well, and it’s considered a very scalable model in new cities, with minimal advertising.”
Infrastructure and reform-oriented businesses, especially in India, is another top theme. Tan says she is “really excited” about the recently elected government led by prime minister Narendra Modi, who has pledged to address India’s pent-up demand for infrastructure investment. India represents about 16% of the fund, which holds more than half of its assets in Asian companies.
A top consumer-related holding in Asia is Hyundai Motor Co., the Korean automaker. “Hyundai is a great name in terms of an EM auto play,” says Tan, “but what’s more interesting is that Hyundai has also done an amazing job penetrating the developed markets, such as the U.S. and Canada. So it’s a great company, it’s very inexpensive, and it has a very strong balance sheet.”
Tan’s largest Latin American exposure is in Brazil, the region’s largest country, with a 7.3% weighting in the overall portfolio. Brazil requires a lot of infrastructure spending, she says, “and as a market is quite inexpensive.”
Overall, emerging markets trade at a discount to the developed world, says Tan, who considers them cheap in relation to their earnings growth potential. She is also keeping an eye on potential opportunities in the “frontier markets,” such as Dubai, Saudi Arabia and Vietnam. “Their valuations and liquidity are two things that I’m watching closely.”
Tan, who has led the $12.3-million Excel fund since the end of 2012, follows a bottom-up, growth at a reasonable price (GARP) approach. Her time frame for holding a position is typically two to three years, but stocks often achieve her target valuation in a shorter period.
Tan favours more established, quality, large-capitalization companies and prudent diversification by security. An individual stock weighting among the current 70 holdings would not exceed 5%.
In terms of sector weights, “it would never be 30% of the portfolio in any sector,” says Tan. Currently, her largest sector weightings are financial services with 19.3% as of June 30, and information technology with 10.7%.
Born in Malaysia, Tan, 38, received a bachelor of science with honours, specializing in physiology from the University of Alberta in 1997. After graduation, she joined CIBC Wood Gundy in Edmonton as a junior advisor.
Pursuing further studies, Tan received an MBA in 2001 from the Schulich School of Business at York University. That year, she accepted a position as an investment banker at TD Securities Inc. in Toronto, focused primarily on mergers and acquisitions.
“That’s where I also learned the importance of management teams,” says Tan, “and why I value qualitative analysis.” She estimates that the assessment of management and their ability to make the right decisions makes up more than 60% of her research.
In 2005, the year Tan received the CFA designation, she joined a small boutique advisory firm in Toronto as an analyst and also dealt with individual clients. In 2008, she moved to Gluskin Sheff and Associates Inc. and co-managed the Canadian equity portfolio with her mentor Ira Gluskin, and subsequently Bill Webb, the firm’s new chief investment officer. She left the firm in 2011 when the Canadian team was restructured and joined Mississauga-based Excel Funds in 2012.
“Ira really helped refine the way I think,” says Tan. “When you look at a stock, you need to really think about the risks and where you could be wrong.”
In positioning Excel Emerging Markets, “as someone who’s grown up there,” says Tan, “I’ve seen how countries in emerging markets have really evolved over the decades. There are still lots of risks that an investor has to think about, whether it’s politics or currency, for example, but emerging markets are a lot more diversified now, with pockets that can grow and offers some amazing companies.”