You’re used to traveling and talking with senior business leaders – how has being grounded by the pandemic affected your work and your ability to analyze companies?
Mike Tian: There’s actually been some interesting silver linings on the management side as a result of the pandemic, as it relates to company access. Just like us, management teams aren’t able to travel. As a result, many have become even more available to investors. During the onset of Covid-19, in March and April 2020, we were basically able to have access to every company WCM owns. In the months after, access has continued to be very good.
We do like being in country – talking with employees, former employees, customers, suppliers, and partners. You do lose a little bit in a phone or Zoom conversation as opposed to being face to face, but overall, we’ve seen good adaptation on the part of management teams.
How have your conversations with management teams changed in the pandemic environment?
Mike Tian: When we had these conversations early in the crisis, we weren’t really trying to figure out what Q1 or Q2 numbers were going to be because as long-term investors, that’s not as relevant to us. There were cases where we wanted to make sure liquidity was ample and things of that nature, but the vast majority of companies we hold have strong balance sheets and all that.
The biggest thing we were trying to get out of the conversation was – how are you as a business sustaining and protecting your corporate culture? Are you able to – not just roll with the punches, but somehow use this unprecedented situation to your advantage? Is this an opportunity to strengthen your competitive position against your competitors? Many of these conversations were gratifying. We came away thinking that companies were by and large doing the right things.
What are the ways in which you’ve seen companies adapt to the realities of the pandemic?
Mike Tian: We actually encouraged our portfolio of companies to be careful not to lay off too many people too early – you don’t want to lose the institutional knowledge and expertise or demoralize people. We had one company that gave raises to employees in an effort to keep them on board. We also saw companies cross-train employees when their previous functions weren’t going to be as much use in a Covid-19 world.
What’s an example of a particularly effective adaptation you witnessed?
Mike Tian: We own stock in a company that makes power tools. During February and March 2020 – when everything with Covid-19 was at its worst – they saw competitors pull salespeople away from major retailers. They saw their competitors slowing down and pushing out new product introductions. Our holding actually did the opposite. They actually accelerated hiring, put more sales representatives into stores, and accelerated new product lines. As a result, they were able to take over a good amount of shelf space and market share. It’s a good example of how a company with the right longer-term orientation can turn circumstances – even a crisis – to their advantage.
What about adaptations in corporate culture as a result of the pandemic? Any examples there?
Mike Tian: For WCM, culture and competitive advantage go hand in hand. We look for innovative companies and companies that foster employee debate – companies whose employees are really incentivized to help the company achieve its goals.
We own stock in an Indian bank, one that we think is a very well-managed organization. As the crisis took hold, they recognized that their loan officers and salespeople would have limited work in the near term, so they cross-trained them to essentially become account managers who would deal proactively with loan delinquencies caused by the pandemic. Instead of just furloughing staff and sending them home, they began dealing with an important issue they foresaw coming down the pike – six months or more into the future. We felt that was a particularly good example of growing institutional knowledge and being proactive despite the challenges of the moment.
How concerned are you about volatility in the market in the face of continued Covid-19 challenges?
Mike Tian: Well, we of course have no idea how volatile the next 12 months are going to be. We believe we were actually able to take advantage of the volatility we saw during the February through April timeframe in 2020. We feel like we were able to pick up some pretty good stocks fairly cheaply. If there’s volatility in the months ahead – who knows – I’m sure stuff is going to happen in the markets. The best we can do is try and take advantage of any opportunities that we see becoming available.
In your opinion, how has the pandemic affected the work of active managers?
Mike Tian: Honestly, for us, it’s been fairly business as usual. We think the opportunity set in front of us – especially in emerging markets – is really quite broad. I believe we’re lucky in the sense that emerging market indexes are arguably becoming a little bit less efficient, because of so many developments in the Chinese market. We actually think of ourselves as being in a really good position in terms of being active managers in this environment.
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