Hidden growth opportunities across Asia: Q&A with Gabriel Sacks

How do you uncover the strongest growth opportunities across Asia?

Our focus is on identifying smaller companies that can compound earnings over many years, rather than trying to predict short-term macroeconomic trends. Asia is home to hundreds of under-researched businesses, many of which operate in attractive niche markets with limited analyst coverage, creating an opportunity for active managers willing to make direct engagement. We combine extensive on-the-ground research with a large regional analyst team and c2,000 company meetings each year to identify businesses benefiting from structural growth drivers. In terms of our investment philosophy, our ‘North Star’ has always been to pick quality companies, as determined by their corporate governance credentials, industry position and financial strength.

Can you highlight some of Asia’s major technology innovation that is reflected in the portfolio?

One of the advantages of investing in Asian smaller companies is the ability to gain exposure to innovation through the critical suppliers that sit behind many of the region's most important growth themes. Rather than trying to identify the ultimate winners, we often favour a "picks and shovels" approach by investing in businesses that enable innovation across entire industries.

In healthcare, WuXi XDC provides specialised development and manufacturing services for advanced biologic drugs and antibody-drug conjugates. As pharmaceutical companies increase investment in next-generation therapies, demand for specialist development and manufacturing capabilities continues to grow.

In advanced manufacturing, Precision Tsugami benefits from increasing automation and the need for ever-greater manufacturing precision. As Chinese manufacturers move up the value chain and invest in productivity, demand for high-quality precision machine tools continues to rise.

In Korea, Hansol Chemical supplies specialised materials used in both semiconductor production and advanced battery applications. The company is therefore well positioned to benefit from long-term growth in digitalisation, electrification and energy storage.

We also see significant opportunities across the power and electrical infrastructure supply chain. Whether the end demand comes from data centres, industrial automation, electric vehicles or renewable energy, substantial investment is required in power distribution, electrical equipment and supporting infrastructure. A number of our holdings benefit from these trends without needing to predict which specific technologies ultimately emerge as winners.

What excites us is that many of these businesses occupy niche but highly strategic positions within their industries. They often have strong technical expertise, high barriers to entry and long growth runways, allowing us to gain exposure to some of Asia's most important innovation themes while remaining focused on durable business models and attractive long-term returns.

What are the other major sources of growth across the Asian economy?

Technology is only one part of the opportunity set. We are also finding attractive growth potential in financial services, industrials, healthcare and consumer businesses.

Rising household wealth in India continues to support asset management and financial savings, benefiting companies such as 360 ONE, the country’s leading wealth management group. Across the region we see growing demand for logistics, infrastructure and energy-related investment as supply chains expand and economies continue to urbanise. Healthcare remains another powerful structural theme as ageing populations and rising incomes drive increased spending on medical services, diagnostics and specialist treatments.

Is there any country that is a particularly rich source of ideas?

India has historically been one of the richest hunting grounds because of its combination of favourable demographics, formalisation of the economy, rising financial penetration and strong entrepreneurial culture. The breadth of high-quality listed smaller companies in India remains second-to-none, but the issue is often the price you need to pay to gain exposure.

That said, opportunities today are increasingly broadening across Asia. We continue to find attractive ideas in Korea's industrial and technology supply chains, China's innovation-led sectors and Vietnam's growing consumer economy. The portfolio is deliberately diversified to provide access to businesses with structural growth across a range of different markets.

Or any sector?

Industrials is one of the largest and most interesting sectors in the region, driven by rising investment globally in areas such as artificial intelligence, robotics, defence and advanced energy infrastructure, to name a few. 

We envisage a future that will be very different from now and expect Asia to be very well placed to benefit from this new age of advanced industrialisation driven by its lower costs, availability of skilled and diligent labour, supply chain clustering, and supportive governments.

How do smaller companies provide diversity of growth?

Smaller companies are often much earlier in their growth journey than large-cap businesses and are poorly researched. Instead of owning a handful of dominant regional champions, we can access companies benefiting from a much wider range of structural themes, including rising healthcare provision, logistics, software, wealth management, industrial automation, testing and certification, and consumer upgrading.

Importantly, many of these businesses derive growth from company-specific factors rather than broad global macro trends and capital flows, helping create a portfolio where returns are driven primarily by stock selection and business fundamentals. The fact that these companies are under-researched also means we are in a better position to uncover hidden gems and identify mispricing opportunities. With Asia’s three largest listed companies representing around one-third of the region’s large-cap index, we think smaller companies can offer high returns without a commensurate increase in risk due to the benefit of diversification.

How do you ensure you don’t pay too much for growth?

Valuation discipline is a critical part of our process. We are willing to pay for quality and growth, but only when we believe future returns justify the price.
 

Rather than focusing on simple valuation multiples, we assess the sustainability of growth, returns on capital, cash generation and the size of the opportunity ahead. We continually compare the expected return from existing holdings against new ideas and are happy to take profits when valuations become stretched. Over the last year we selectively reduced some of our strongest-performing technology and AI-related holdings and recycled capital into other high-conviction opportunities offering more attractive risk-adjusted returns.

Can you highlight some real world examples in your portfolio?

1. Multi Commodity Exchange (India) is India's dominant commodity derivatives exchange. What excites us is the combination of deepening Indian capital markets and a highly scalable business model. As more investors and corporates trade commodity derivatives, such as energy futures, trading volumes can grow significantly while a large proportion of costs remain fixed. This creates substantial operating leverage, meaning revenue growth can translate into even faster profit growth.
2. Mobile World (Vietnam) is best known as an electronics retailer, but we believe the more exciting opportunity lies in the formalisation of Vietnam's grocery market. The country remains heavily reliant on traditional ‘wet’ markets, creating a long runway for modern retail formats to take market share. Mobile World combines a trusted brand, nationwide distribution network and proven execution capabilities, yet continues to trade at a valuation that we believe does not fully reflect the growth opportunity ahead.
3. Kaori Heat Treatment (Taiwan) provides exposure to one of the fastest-growing areas of the power supply chain. The company manufactures heat exchangers used in fuel cells, which generate electricity through a chemical reaction rather than traditional combustion. Fuel cells offer low emissions, high efficiency and rapid power generation, making them an increasingly attractive solution for applications such as data centres where reliable power is critical. We see Kaori as a differentiated way to gain exposure to growing demand for energy infrastructure and power solutions.

Together, these businesses illustrate the breadth of opportunities we see across Asia: deeper financial markets in India, the formalisation of consumer spending in Vietnam and the build-out of next-generation energy infrastructure needed to support increasing digitalisation and power demand.