In this video Damian Bird highlights portfolio movements during the March quarter. A new position was added, TSMC, Taiwan’s leading semiconductor foundry. For more than 20 years, the company has delivered returns on its internally invested capital of approximately 20 per cent well in excess of its cost of capital. Despite the heightened levels of volatility we are currently seeing in the markets, we continue to expect our companies to report robust earnings growth as they move through 2022.
Damian Bird: Our emerging market strategy faced a material set of headwinds in the first quarter with the military conflict between Russia and Ukraine, rising inflation, and tightening monetary policy all weighing on performance. Additionally, rising COVID cases in China disrupted economic activity, as the country reverted to lockdowns to tackle the pandemic. On the positive side, outside of China, the impact of the pandemic has begun to fade, with quarantine-free travel opening up in many emerging markets for the first time in two years. We expect the reopening of borders to provide a substantial boost to growth, as the reopening theme gathers pace through 2022.
During the quarter, we added a new position to the strategy, TSMC, Taiwan’s and the world’s leading semiconductor foundry. We don’t typically own a great deal of technology hardware businesses in our portfolio. This is because a combination of fierce competition, the challenge of keeping pace with technological advancement, and heavy capital requirements tends to make high returns in the sector incredibly hard to maintain. TSMC, however, has long proven the exception to the rule. For more than 20 years, we calculate that it has delivered returns on its internally invested capital of approximately 20% well in excess of its cost of capital. And in the face of massive competitive intensity, and a rapid evolution of chip making technology, we expect that over the next decade, TSMC will remain at the top of the global semiconductor foundry market on accounts of its massive technological leadership, a powerful corporate culture focused intently on execution, and its established and ingrained relationships with customers.
One company that we expect will enjoy a favourable year ahead is our Cambodian casino operator, NagaCorp. The company had a tough time with the pandemic and was forced to close for much of 2020 and 2021. However, thanks to a wide reaching national vaccine program, Naga was able to once again open its doors to visitors in September, and has been sequentially ramping up. Recent reductions in travel restrictions within Southeast Asia should allow for visitations to materially pick up, and we expect the company to report strong growth in 2022. The significant operating leverage in the business means the profits have the potential to grow well in excess of revenues.
Despite the heightened levels of volatility we are currently seeing in the markets, we continue to expect our companies to report robust earnings growth as they move through 2022. Given the recent sell off, we believe that emerging market valuations are at some of the most attractive levels that we’ve seen for some time. So despite these tumultuous times, we continue to be enthused about the outlook ahead for our emerging market strategy.