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Beginning in the 1970s, Milton Friedman and his economist colleagues at the University of Chicago successfully steered private enterprises to prioritize the pursuit of profits as their sole social responsibility. While we will not venture to agree or disagree here, several forces are seemingly working together to shift this mindset. Though still in its infancy, our research and work on ESG for the past two years suggest a more balanced “stakeholder primacy” is taking hold. 

Featured Author: Jessica Lin
Jessica Lin is an analyst on the Artisan Partners Sustainable Emerging Markets Team.

E-commerce was growing markedly faster than overall retail sales before COVID-19, especially in EM. But the global response to COVID-19—drastic containment measures and cautious economic reopenings—led to a surge in online shopping fueled largely by millions of consumers shopping online for the first time. China’s Alibaba reported an increase of 28 million mobile active users in Q2, while Latin American e-commerce company MercadoLibre reported 16 million new active users during the quarter. 

The pandemic has accelerated secular trends—such as the shifts to e-commerce and digital payments, social media’s dominance of advertising spend and the rise of gaming. It’s also intensifying normal cyclical fluctuations, pulling forward home improvement projects and pressuring retailers—particularly those reliant on shopping mall locations—to declare bankruptcy. None of this is terribly surprising. More likely to catch market participants’ eyes, the combination of COVID-19 and social media is amplifying the oldest cyclical phenomenon known to mankind: greed!

Active, bottom-up oriented investors can be caught flat-footed by unforeseen bouts of volatility—indeed, 2020 has already seen several unprecedented selloffs and remarkable recoveries. However, a bottom-up approach needn’t preclude using tools to help identify and, to the extent possible, mitigate the portfolio risks associated with meaningful market reversals. Admittedly, market unwinds will likely never be entirely foreseeable. But we believe it is possible to anticipate periods where the risk of a market reversal is high—and as active managers, to then reevaluate the risk-return tradeoff for portfolio holdings with material unwind risk.

There is frequent debate among market participants about which style factors will be in favor in the future: growth, value, momentum, active, passive, etc. While we do not possess the ability to pinpoint the timing of when one style may be in favor over another, we believe the key element in determining the future path of a share price over the duration of an economic cycle is highly dependent on knowing which way profits are headed.

Featured Author: Gurpreet Pal
Gurpreet Pal is an analyst on the Artisan Partners Sustainable Emerging Markets Team.

As the COVID-19 pandemic evolves, emerging markets are set to take center stage. The US, Italy and other developed markets appear to be flattening the curve and starting to reopen their economies. In comparison, many emerging markets appear to be in much earlier phases of an outbreak. Within EM, India is an especially intriguing country to watch as it seems to be managing the pandemic better than previously feared.

India has the seemingly right conditions for a high number of cases and rapid transmission:

The Q1 market selloff was broad-based and intense, fueled by deep uncertainty about the pandemic’s true threat. In our view, the market did little to discriminate among individual firms, preferring to re-rate sectors given the short timeframe, rapid price action and lack of information.

Of course, our process is built to capitalize on market dislocations, when fear and uncertainty dominate, as is the case in our current environment. But we are also vigilantly risk-aware. This is where a thoughtful and repeatable process makes all the difference. 

Amid significant market volatility due to the COVID-19 pandemic, we remain steadfast in our commitment to our investment philosophy. With a foundation in long-term structural tailwinds, resilient businesses and strong operators, our approach is designed for not only good times but challenging ones as well. Acknowledging the unprecedented nature of these circumstances and the uncertainty of a global health crisis, we thought a few words about our investment approach and how the investment team is spending its time would be appropriate.

As the COVID-19 pandemic continues to drive heightened uncertainty and historic daily volatility, we thought an update may be appropriate. We are closely monitoring this rapidly evolving situation, remaining focused on our deep company analysis in order to understand the impacts to businesses’ growth outlooks, as appropriate. As this crisis has unfolded, companies have revised their revenue and earnings outlooks sharply lower. While supply-chain disruptions emanated from China as early as January, the economies of Western Europe and the US are just now experiencing their corresponding demand shocks.

Global financial markets have been experiencing sharp drawdowns and extreme volatility. Although the catalysts may be unique—COVID-19 and an oil price war between Saudi Arabia and Russia—the occurrence of such dramatic turns in global financial market and economic conditions is not. We believe a narrow focus on sustainability helps account for such unpredictable periods. While we are not immune to these gyrations, we believe we are also in a period of opportunity. We continue searching for companies with sustainable competitive advantages or unique access to growth—characteristics that enable companies to persist through volatility, succeed after the dust settles, and generate alpha over the long term.