Polen Emerging Markets Growth Q2 2023 Portfolio Manager Commentary

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Seeks Growth & Capital Preservation (Performance (%) as of 6-30-2023)



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Polen Emerging Markets Growth (Gross)








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The representative account is an account within the Polen Capital strategy and has been deemed as of such point in time the most representative of the Polen Capital accounts pursing this investment strategy. At any given time, Polen Capital may change the representative account of the strategy based on the determination at such time as to which account is most representative of the Polen Capital managed accounts pursuing the Emerging Markets Growth strategy. The performance information shown has been calculated using a representative account managed by the firm; however, the firm manages other accounts that are not presented and further information regarding those accounts is available upon request. Differences may occur due to factors such as timing of investments, cash movement and client restrictions. There is no guarantee that an investor would achieve performance comparable to what has been presented herein. Actual portfolio performance and characteristics in individual client portfolios will vary and are subject to change. Actual performance may be higher or lower. The commentary is not intended as a guarantee of profitable outcomes. Any forward-looking statements are based on certain expectations and assumptions that are susceptible to changes in circumstances. Opinions and views expressed constitute the judgment of Polen Capital as of the date herein, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change. All company-specific information has been sourced from company financials as of the relevant period discussed.


Emerging market (EM) equities posted a 0.9% gain in USD during the second quarter of 2023, resulting in a year-to-date return of 4.9%. However, beneath the positive headline index return, there were significant variations at the individual country level. Chinese equities notably suffered a decline of nearly 10%, while several other major index markets, such as Brazil (up 21%), India (up 12%), Korea, and Taiwan (both up over 4%), showed gains.

Tensions between the U.S. and China and concerns about China’s lackluster economic recovery in recent months contributed to the disappointing returns in emerging markets compared to the 7% gain in developed markets. Brazil’s performance was buoyed by easing fiscal policy concerns, optimism around possible interest rate cuts, and better-than-expected Q1 GDP figures.

In India, improved macroeconomic data and indications of continued accommodative monetary policy were supportive factors.

Elsewhere, Turkey experienced significant losses in the period following President Erdogan’s re-election, which extended his two-decade rule.

Portfolio Performance & Attribution

Over the second quarter of 2023, the Polen Global Emerging Markets Growth Composite Portfolio (the “Portfolio”) returned -2.36% gross and –2.42% net of fees, respectively, underperforming the MSCI Emerging Markets Index (the “Index”), which returned -0.9%.

At a country level, relative underperformance was driven by both security selection and allocation impacts. Relative performance was supported by an overweight in the Portfolio to a strong Indian equity market, exposures in Poland, and an off-index investment in a Portuguese listed retailer (Jeronimo Martins). However, these positive effects were outweighed by negative security selection impacts in Taiwan, China, and India. On a sector basis, relative losses were concentrated in Consumer Discretionary, Information Technology, and Financial sectors, while there were gains in the Consumer Staples sector.

On a stock level, Anta Sports (OTCPK:ANPDY, China, Consumer Discretionary), Momo (Taiwan, Consumer Discretionary), and Dlocal (DLO, Financials, Uruguay) were the largest detractors from relative performance in the quarter.

Anta Sports is a dominant home-grown sportswear company in China. It owns a portfolio of leading brands, including Anta, Fila (master franchise for China), and Descente (among others). It has been consistently expanding its Portfolio and market share over the past years.

Along with several other Chinese names, Anta enjoyed a relatively strong start to 2023 in the hopes of a strong economic recovery in a post-lockdown environment. This outlook has not materialized as quickly as the market has demanded, resulting in a meaningful sell-off in the past few months.

While the operating environment remains challenging for Anta (and all players in the segment), nothing fundamental has changed. We expect the firm to grow over the longer term as demand for active/sportswear increases.

Momo is a leading Taiwanese e-commerce business, with a market share of around 30%. The stock was down near 26% in the period due to disappointing sales growth and broader segment concerns over the lackluster level of digital sales growth since lockdowns were removed. This is a trend we are monitoring closely.

Dlocal is a payments processing company headquartered in Uruguay. It focuses on processing online payments for large, multinational enterprise customers in emerging markets, enabling them to seamlessly make and receive payments in more than 35 countries across 700 payment methods in any currency. Share price weakness occurred after the company announced results that saw strong revenue growth but relatively weak profitability, feeding into a drop in market confidence.

Dino Polska (OTCPK:DNOPY, Poland, Consumer Staples), Raia Drogasil (RADLY, Brazil, Consumer Staples), and Jeronimo Martins (OTCPK:JRONY, Portugal listed retailer) were the largest contributors to relative performance in the quarter.

Dino Polska is a Polish supermarket chain operating highlystandardized stores in the discount proximity format. The stock railed almost 26% in the period. Polish equities were generally strong (The MSCI Poland Index alone was up 22%), which helped the broader sentiment, while Dino delivered a solid set of results, maintaining margins despite high inflation.

Rias Drogasil is a retail pharmacy chain in Brazil. Similarly to Dino, the market in Brazil in the quarter was broadly supportive, and the stock participated in the rally.

Jeronimo Martins is a Portuguese-listed retailer with major operations in Poland and a growing presence (ARA) in Colombia. The company delivered good results in the period. For their Polish operations, sales growth of nearly 25% outpaced local food inflation (which was 23%), and guidance is for continued strength for the rest of the year. The company’s margins were stable (better than expected), which was received positively given the 16% minimum wage increase in January (with another 6% increase due in July). The company also added nine new stores, with an additional 130-150 slated to be opened (and 350 remodeled) over FY23.

Portfolio Activity

The Portfolio sold a small number of positions to realign the Portfolio into higher conviction names. Sales included By-Health in China, Torrent Pharma, Marico, and Colgate in India, and Discovery in South Africa.

The Portfolio added E-ink (OTC:PVWIF) in Taiwan and Yum China (YUMC).

E-Ink enjoys an almost monopolistic position in the e-paper film market, a technology most recognizable in Amazon’s Kindle or the Remarkable Reader. Consumer electronic uses, however, play second fiddle to the addressable market for electronic signage labels (ESL). The primary advantage of the technology is that it is naturally reflective (i.e., able to be read from a wide angle without the need for a backlight) and bistable (i.e., only requiring power when the display is changed), both of which allow for exceptionally long battery life.

Use cases are in retail, where pricing can be updated centrally, saving significant time and labor costs. However, there are many other applications for which it could be used (road signage, billboards in its color variant, hospital signage, name badges, etc.).With strong tailwinds behind product adoption, we believe the company can compound its earnings at 20% or above over the coming years and throw off strong cash flows along the way.

We previously owned Yum China pre-pandemic and sold it amid concerns over same-store sales in the lockdown environment. As Chinese dining habits begin to normalize, Yum China is now a much larger company with 13,000 outlets today compared to the 9,000 in 2019; more profitable, as the Pizza Hut brand has been revived and, as such, is no longer a drag on margins; and is much more cash generative.

In 2019 Yum China reported USD 700 million in net profit and USD 1.2 billion in operating cash flow. In 2024 we believe the company could deliver USD 1.4 billion of net profit and USD 2 billion of operating cash flow. Of this, we can expect at least half of it to be returned to shareholders, implying a roughly 4% shareholder return yield on its USD 25 billion market cap, which we believe is impressive for a company that should be able to grow steadily in the low to mid-teens over the medium term.


We expect volatility to persist though we note that growth has been and will likely continue to be robust in several countries in the EM universe. India, in particular, has been a standout. India is among the world’s fastest-growing major economies, with an estimated growth rate of around 7% according to Bloomberg estimates. Their recovery gained momentum as domestic supply chains normalized and activity in “contact-intensive” sectors rebounded.

Robust balance sheets in the corporate sector and banks enabled a rebound in credit demand, which was also facilitated by the government’s significant increase in capital expenditures. The current account deficit is manageable, inflation and interest rates seem to have peaked, foreign direct investment is rising steadily, and domestic flows into capital markets are strong.

As investors, we focus our attention on the long-term fundamentals of the companies we own. Our conviction in our investment’s competitive advantages, sustainability, and durability remains high, and we believe the Portfolio is wellpositioned to navigate the future.

Looking ahead, we remain dedicated to finding companies with competitive advantages that we believe can compound earnings and cash flows over the long term, independent of commodity swings or economic cycles.

Given the power of compounding over time, we think that once we invest in great businesses, the best path forward is to stay the course through a long-term approach.

Thank you for your interest in Polen Capital and the Global Emerging Markets Growth strategy. Please feel free to contact us with any questions.


Rishikesh Patel, Damian Bird and Dafydd Lewis

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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