Manny Stotz - Frontier Markets Investing

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:56)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions and the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
My guest today is Manny Stotz, the founder of Kingsway Capital. Manny is one of the leading investors in frontier markets, investing in equities in countries like Egypt, Bangladesh and Pakistan. We discussed the opportunity in these markets from all angles, demographics, valuations, sectors and beyond. It's important to note that we recorded this conversation before the Covid pandemic, and these markets have fallen 30% more without a similar rebound in prices that we've seen in the US.
As you listen, you'll hear why this may be relevant for the companies Manny focuses on and may accentuate the opportunity in frontier markets, even relative to the numbers quoted in this conversation. Listeners will know my interest in frontier markets runs deep, so I was excited to have one of the categories leading investors join me. Please enjoy my conversation with Manny Stotz.
So Manny, we're going to discuss what I think is one of the most interesting thing happening in markets today, which is incredible divergence between the performance of the US equity market and basically everything else around the world. The result of 2019 was great for the US but it was entirely multiple expansion, basically no fundamental growth. The rest of the world is completely different. So what I'd like you to begin by doing is describing a little bit who Kingsway is, why you started this style of investing fund, and then I want to dive into what could be an incredible global opportunity.

**Manny Stotz** (2:40)
Sure. Well, first of all, Patrick, thank you so much for having me on this.
As I said to you earlier, I was quite hesitant to do anything on the record, which is not our style. We believe there's no glory in this business, but only results, and hence we don't even have a website. But I do agree with your sort of high level observation that there is a very interesting moment in time where again, the US market has done so incredibly well, the rest of the world has not, and there are certain individual geographies that are entirely bombed out. I happen to be an investor in those geographies.
So Kingsway was conceived just over six years ago. We are an investor in what we call frontier emerging markets. So the idea is basically if you look at the kind of bigger emerging markets of today, whether that's China, India, Brazil, and so forth. So we've studied a lot the wealth creation in these markets, and of course, it's been absolutely spectacular. The Chinese equity market basically didn't exist something like 20 years ago, and it's now shy of $10 trillion. India's market cap is $2.5 trillion or so. And of course, that's just the public equity. And if you just look at the wealth creation in emerging markets, it's been nothing short of remarkable. And so frontier markets are the ideas basically in terms of look at the level of GDP per capita, look at the level of consumption per capita, look at the level of market caps, both in absolute dollars, but also in terms of multiple. Those are countries which are basically 10 to 15 years behind, in my mind, behind the bigger emerging markets. And to throw some names out there, so we look at kind of Vietnam downwards. So Vietnam is one of the most developed countries we're in. Our biggest country is Bangladesh, which I'll talk a little bit about. We're in Pakistan, we're in the Middle East, we're in Sub-Saharan Africa. The way I came to this journey perhaps is interesting to some. So I'm not from any of these countries myself. I'm from Black Forest, Germany, which is a lovely but rather provincial part of the world. Grew up there, humble middle class background, dad's an engineer, mom's a psychologist. So they're academics, but had very little or nothing really to do with big business, let alone global finance.