Emerging Market Stock Picker Says Key Is Ignoring Macro ‘Noise’

(Bloomberg) -- A winning strategy for Paul Espinosa, a money manager at San Francisco-based Seafarer Capital Partners LLC, is to concentrate on cash flows and ignore the macro economic slowdown.

His funds, which focus on global developing-nation stocks, are outperforming the MSCI Emerging Stock Index amid concerns of a slump in global growth and a rising dollar. His approach is to be stock-specific, looking at their value in terms of the drivers that produce cash flows, instead of merely weighing the valuation multiples, Espinosa said in an interview during his visit to Singapore.

“Tune out the noise,” said Espinosa, 46. “From a risk perspective, avoid the Argentinas of the world. Just avoid the landmines. For everything else, you can focus on being stock-specific.”

The flagship $1.5 billion Seafarer Overseas Growth & Income Fund has returned more than 14% so far this year, while the $38 million Seafarer Overseas Value Fund has gained more than 17%. They’ve beaten 78% and 89% of their peers, respectively, according to data compiled by Bloomberg.

While the global easing by central banks has supported emerging-market assets, the trade war has made some investors cautious amid the volatile actions by the U.S. And China. The MSCI Emerging Markets Index is up almost 6% this year, lagging the 17% gain for the developed market equivalent.

Bets including China Yangtze Power Co., Brazilian insurance broker Qualicorp Consultoria e Corretora De Seguros SA and Singapore-listed food giant Wilmar International Ltd. have taken the performance of the flagship fund into the top quartile. He picked those stocks for their sound cash flows despite the macro headwinds in their home markets.

Espinosa, who has been largely covering emerging markets since 1996 for firms including JPMorgan Chase & Co, said that Seafarer’s flagship fund is almost fully invested, while the value fund is maintaining a 17% cash level to buy stocks at the right time and price.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net;Ishika Mookerjee in Singapore at imookerjee@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Lianting Tu, Naoto Hosoda

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