Sunniva
Kolostyak:
Welcome
to
Morningstar.
Today
I
am
joined
by
Edmund
Harriss,
the
CIO
of
Guinness
Global
Investors.
Edmund,
thank
you
very
much
for
being
here.
Edmund
Harriss:
Hi,
very
nice
to
see
you.
SK:
So,
you
also
manage
the
Asian
Equity
Income
fund,
and
I
would
love
to
start
there.
Would
you
like
to
give
me
an
overview
of
the
fund
and
how
you
are
positioning
yourself
in
the
current
environment?
EH:
Certainly.
So,
the
Asian
Equity
Income
Fund
is
really
focused
on
buying
good-quality
businesses
that
have
sustainable
competitive
advantages,
have
demonstrated
that
through
superior
returns
on
capital,
stronger
cash
flow
and
profitability
as
a
consequence,
and
that
underpins
a
cash
stream
that
funds
the
dividend.
So,
we
are
not
specifically
looking
to
generate
income.
We
are
looking
for
good
businesses
that
are
profitable,
reinvesting
in
their
business,
but
generating
more
cash
than
they
need.
And
that
has,
I
think,
created
an
interesting
investment
strategy.
We
have
a
pretty
well-defined
view
on
what
constitutes
a
good-quality
company,
which
is
returns
on
capital,
sustained
over
time,
year
after
year
after
year,
delivers
a
high
probability
that
these
returns
will
persist.
So,
when
we
are
looking
to
invest
in
these
companies,
does
the
current
market
price
reflect
that
likely
persistence
of
returns?
So,
we
are
looking
at
it
from
the
point
of
view
of
the
business
first
operating
in
a
higher-growth
region,
as
opposed
to
looking
at
a
higher-growth
region
and
then
trying
to
find
something
that
will
reflect
that.
So,
we
have
a
portfolio
of
36
companies,
equally
weighted
with
the
same
investment
proposition,
returns
of
the
past
likely
to
persist,
but
priced
as
if
they
won’t.
There
are
different
stories
underlying
that,
different
sectors,
different
countries,
different
themes
that
drive
that.
But
all
of
them
with
this
similar
investment
case,
and
all
of
them
throwing
off
extra
cash
that
they
do
not
need,
which
supplies
you
with
a
dividend
stream.
And
I
think
what
makes
it
really
interesting
for
investors
is
that
these
companies
aren’t
paying
out
significantly
higher
proportion
of
their
earnings
than
their
developed
market
counterparts,
but
they
are
trading
at
much
lower
valuations.
So,
you
are
getting
good
businesses,
a
decent
dividend
stream
paying
out
about
half
their
earnings,
but
a
higher
yield
because
you
are
paying
less
per
dollar
of
income.
And
that
has
delivered
a
very
reasonable
and
almost
predictable
returns
profile
over
time,
which
has
been
driven
by
underlying
profitability
and
that
dividend
stream.
We
have
had
no
help
from
valuations
or
re-valuations
of
stocks.
It’s
fundamentally
driven.
SK:
So
then
let’s
talk
about
the
economic
environment
in
Asia
and
maybe
China
in
particular.
How
do
you
see
that
developing
at
the
moment?
And
I
guess
how
does
that
impact
your
fund?
EH:
Well,
there
are
different
economic
drivers
within
the
region
and
different
types
of
exposure.
If
we
look
at
China,
the
story
really
is
primarily
a
domestic
one.
Yes,
they
are
a
massive
exporter
of
manufactured
goods.
Total
trade
with
China
is
around
$6
trillion
a
year.
Their
importance
to
the
global
trade
network
can
be
seen
in
the
number
of
containers
that
are
shifted.
There
are
about
860
million
boxes
moved
around
the
world
each
year.
China
handles
one
in
three.
So,
they
are
a
very
big
player
in
world
trade,
but
the
issues
they
are
facing
are
fundamentally
domestic.
A
property
sector
that
has
overrun,
too
much
capacity,
too
many
apartments
built,
funded
by
debt,
that
needs
to
unwind
and
that
is
exercising
quite
a
major
drag
on
the
domestic
economy.
But
the
question
is,
is
it
structural?
Is
it
cyclical?
This,
I
think,
is
becoming
more
apparent
that
this
is
a
cyclical
problem.
But
if
you
look
at
somewhere
like
Korea
and
Taiwan,
they
are
more
plays
on
global
growth
and
are
particular
beneficiaries
of
the
technology
themes
that
we’re
seeing.
And
the
AI
theme
is
a
big
story
in
developed
markets.
But
on
the
Asia
side,
Asia
is
where
the
stuff
is
made.
This
is
where
the
chips
are
made,
the
power
supplies
are
made,
the
circuit
boards
are
made,
the
coatings.
All
of
these
things
are
to
the
benefit
of
Asia.
And
that
strength
in
capital
spending
and
technology
has
benefited
Taiwanese
and
Korean
stocks
more
broadly.
Then
if
you
look
around
to
India,
again,
you’re
seeing
high
growth
there,
but
it’s
domestic
growth
that
drives
that.
So,
I
think
within
the
region,
you’ve
got
quite
a
bit
of
diversification
in
what
drives
individual
sectors
and
individual
countries
so
that
when
we’re
looking
for
good
businesses
at
good
valuations,
there’s
really
quite
a
lot
to
choose
from.
SK:
So
obviously
you
said
you
have
a
lot
to
choose
from,
but
you
don’t
obviously
just
look
at
Asia.
You
are
the
CIO
of
the
wider
business
as
well.
So
how
do
you
avoid
those
biases
that
you
maybe
pick
up
by
doing
the
research
for
your
own
funds?
How
do
you
avoid
maybe
over-choosing
things
from
your
own
biases,
I
guess?
EH:
Yeah,
I
mean,
certainly
it’s
always
easier
to
go
with
what
you
know.
And
therefore
–
I’m
only
human
and
certainly
I
will
have
a
lean
toward
that.
But
at
Guinness
Global
Investors,
we’ve
got
a
team
of
senior
and
experienced
investment
managers
who
focus
on
global
and
developed
markets,
who
focus
on
specialised
markets
and
sectors
such
as
energy
and
sustainable
energy.
We
have
regional
specialists
looking
at
Europe
and
emerging
markets
and
so
forth.
And
so
really
what
I’m
looking
for
as
CIO
is
that
they
are
applying
an
investment
process
that
is
consistent
with
our
aims
of
good
companies
from
the
bottom
up
that
are
informed
by
the
macro
environment
by
sector,
by
country,
by
global
environment.
And
that
is
really
at
heart
our
approach.
We’re
not
making
calls
on
the
cycle
and
we’re
not
making
calls
on
interest
rates.
I’ve
got
30-plus
years
of
experience
in
the
investment
industry.
When
we
look
and
seek
to
try
and
understand
what’s
going
on
with
US
interest
rates,
because
that
is
having
such
an
impact
on
market
sentiment,
what
are
sort
of
likely
outcomes?
My
responsibility
is
really
to
take
a
longer
view
and
to
remind
people
that
what
is
driving
Federal
Reserve
policy
is
not
what
happened
in
the
last
10
years,
not
what
happened
in
the
last
20
years.
But
in
fact,
what
happened
back
in
the
late
70s
and
early
80s,
when
a
high
inflation
peak
in
around
1975
was
followed
by
a
pre-emptive
or
an
early
cut
in
interest
rates
only
to
be
followed
three
years
later
by
even
higher
peak
in
inflation
and
even
higher
peak
in
interest
rates.
And
that
is
what
the
Federal
Reserve
is
trying
to
avoid.
So,
we
stick
really
to
what
it
is
we
have
confidence
in,
which
is
good
companies,
and
my
job
is
really
to
ensure
that
the
process
that
the
teams
are
following
is
still
making
sense.
And
that
is
kind
of
how
we
avoid
my
biases.
I
like
to
think
that
what
I’ve
put
in
is
informed,
and
maybe
some
specialist
knowledge.
But
others
are
given
sort
of
–
they
have
the
scope
to
make
their
investment
decisions
in
that
context.
SK:
So,
what
is
it
that
you’re
excited
about
at
the
moment?
What
is
it
that
you
have
confidence
in
that
maybe
has
the
potential
to
maybe
bring
a
bit
more
optimism
around
markets
in
the
next
few
years?
EH:
I
think,
from
my
perspective,
Asia
and
indeed
Europe
are
both
trading
comparatively
cheaply.
Asia
trading
particularly
cheaply.
Europe
has
had
a
decent
run,
but
it’s
still
a
long
way
from
being
expensive.
I
think
we’ve
got
some
good
earnings
growth
to
be
found
in
both
of
those
regions.
And
if
we
just
focus
on
Asia,
I
mean,
the
subject
of
this
conversation,
we’re
looking
forward
to
strong
earnings
growth
over
the
next
two,
three
years
from
India,
where
valuations
are
high,
from
China,
where
valuations
are
historically
low
only
at
single-digit
P/Es,
but
you’re
also
seeing
prospects
for
decent
earnings
growth
coming
through
from
Korea,
and
from
Taiwan,
and
from
Singapore,
with
less,
I
would
say,
coming
from
Australia,
which
is
more
geared
towards
materials,
commodities
and
the
financial
sector.
So,
I
think
there’s
a
lot
to
be
interested
in.
So,
if
we
take
India,
I
think
that
there
are
interesting
opportunities
in
the
consumer
space,
staples
to
some
degree,
discretionary
to
a
much
greater
degree.
We’re
seeing
Indian
companies
developing
more
in
their
overseas
markets.
There
are
stocks
that
have
not
been
focused
upon
by
investors
to
the
same
degree.
So,
there
are
still
valuation
opportunities
there.
China,
as
far
as
our
fund
is
concerned,
is
a
big
opportunity.
We’ve
got
about
30%
of
the
fund
in
it.
We
are
happy
with
the
companies
we’ve
got,
because
we
can
see
that
even
through
this
tough
period,
we
can
see
what
profits
have
done.
And
we
can
see
what
dividends
have
done,
which
basically
explains
or
justifies
or
validates
what
we’ve
seen
in
profit
growth.
The
profit
growth
has
come
through
in
dividend
growth
in
the
companies
that
we’ve
got.
And
so
therefore,
we
have
we
have
higher
confidence
in
those.
So,
I
think
within
Asia,
which
is
trading
still
below
its
long
run
averages
in
aggregate,
but
underneath
that,
with
strong
economic
drivers,
some
powerful
investment
themes
already
evident.
And
the
probability,
I
would
argue,
that
China
is
going
to
pick
up
I
think
represent
fantastic
opportunities
here.
So,
I
think
there’s
plenty
for
investors
to
get
excited
about.
SK:
Well,
Edmund,
thank
you
very
much
for
joining
me
in
the
studio
today.
For
Morningstar,
I’m
Sunniva
Kolostyak.
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