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So structurally, yes, we could wait for bank
branches and credit cards to be established
everywhere. But if everybody has got their
smartphones, that’s how financial services are
going to be provided. So clever companies are
starting with small-dollar lending. They’re
judging creditworthiness using data like, How
up-to-date is your Android operating system?
Do you charge your phone at night?BROWN: If you bought a Brazilian ETF 10
years ago, you have no return to show for it.
But if you bought MercadoLibre, which is
the payment processor slash e-commerce play
of Brazil, you’re up, like, 1,000% and change.FUNK: It turns out it’s a really good business
proposition to get 1.5, 1.8 billion under-
banked people as customers.
As an ESG investor, I think in terms of com-
panies playing offense rather than defense in
markets like these. Some typical environmen-
tal, social, and governance analysis is defen-
sive: Do you have a handle on labor relations?
Do you have environmental liabilities? Are
your physical operations insulated against the
effects of climate change, and are you doing
the same thing within your supply chain?cently, they’ve been using debt rather than equity to finance deals.
BROWN: Yeah, but isn’t it rational to use that cheap debt financing?
FUNK: And consolidation makes some businesses stronger. Re-
search labs, clinical labs, industrial labs, they want to buy from
fewer vendors. The ones that are consolidating, like a Thermo
Fisher Scientific or a Danaher, are grabbing more share of wallet.
SUBRAMANIAN: It’s good to lock in the low cost of capital, but if your
debt is floating, and you’re going to pay that increase in the cost
of debt over the next couple of years, that’s where you worry a little.
FORTUNE: I have to bring up the elephant in the room. As investors, does
the unfolding of the impeachment story affect your outlook?
SHARPS: No. I think it’s political theater. Unless there’s something
that we’re not aware of that comes out as evidence in the proceed-
ings, I wouldn’t change my perspective.
BROWN: The Nixon impeachment was a buying opportunity. Its
denouement—did I pronounce that right?—denouement coincided
with the bottom of the ’74 bear market. And of course Clinton
in 1998, if you sold that, you missed 18 of the best months of all
time. So I would not play that game with my portfolio. Is that the
denouement of that question?
FORTUNE: The denouement was an anticlimax, and now I’m moving on.
Our conversation has been very domestically focused. But are people
seeing opportunities outside the States?
BROWN: Well, it’s been a 50% outperformance for U.S. stocks versus
international stocks in this cycle. So for the people who said you
don’t need international, they look really smart. When are people
going to get excited about European stocks trading at 12 times
earnings? I don’t know when that will be because you would have
thought it would happen at 14 times earnings. And it hasn’t.
SHARPS: The problem with looking at international broadly is that
there are such deep structural problems in places like Europe and
Japan. There are some good things going on in the Japanese mar-
ket in terms of better corporate governance, better capital man-
agement, et cetera. But the underperforming sectors, financials
and energy, are very dominant in European indexes. So I do think
emerging markets is a good place to look.
STRANGE: Structural challenges in emerging markets actually pres-
ent opportunities. Look at Latin America. Credit card penetration,
it’s like 14% or 15%. But smartphone penetration is up to 80%.