Minutes into an hours-long interview in his downtown Manhattan office, Justin Leverenz, the star emerging-market stock investor at Invesco, starts comparing himself to Odysseus.
(Bloomberg) — Minutes into an hours-long interview in his downtown Manhattan office, Justin Leverenz, the star emerging-market stock investor at Invesco, starts comparing himself to Odysseus.
It’s something about choppy markets and tying himself to the mast of the ship to focus on a handful of big, bold, long-term bets. But underneath the grandiosity of it all, what Leverenz is driving at is this: He considers himself the dominant player in the market and, after a pair of wrong-way bets in Russia and China wrecked his returns the past two years and sparked an investor exodus from his fund, he’s determined to climb back to the top.
“I absolutely want to be the best performer in the entire category,” says Leverenz. If that sounds a little egotistical, that’s OK to him. He, though, prefers to see it as a motivating force that’s ultimately good for his clients. “I hope that’s not narcissism, but to me, that’s really important.”
So he’s hop-scotching around the world again, huddling with CEOs in search of an edge that can get him back to the kind of stand-out returns that had made his fund — the Invesco Developing Markets Fund — the biggest of its kind. At its peak, the fund reached $54 billion. Between losses and investor redemptions, it now stands at just $25 billion and has been eclipsed for the top spot by a fund managed by Capital Research and Management.
Leverenz has thrown the fund open for the first time in a decade to lure back money, but so far, there are few takers. Investors, in fact, yanked another net $1.6 billion this year even though his big wagers on stocks like Grupo Mexico and Taiwan Semiconductor Manufacturing are starting to produce outsized returns again. The fund’s up 12% this year.
This underscores a key problem for Leverenz and all his rivals: Emerging markets are now so out of favor — as is investing with active, rather than low-cost passive, funds in all types of markets — that it’s difficult for a money manager to gain attention and attract cash.
Long gone are the go-go years of the aughts when China’s economy was roaring, BRICs were the hot, new buzzword on Wall Street and Mark Mobius was a darling of the financial press.
Mobius may have been the public face of emerging markets back then, but it was Leverenz who was pumping out bigger returns. Even after the boom went bust — some time around 2011 — he continued to eke out bigger profits than the market average. From 2007, when he took over management of the fund, to 2020, he beat the benchmark emerging-market index by some 50 percentage points. (Among rival US-based funds with $1 billion under management or more, only one, Aberdeen’s Emerging Markets Fund, fared better.)
“He’s very experienced in this area, very knowledgeable, and until the past couple years, ran up a very good record,” says Gregg Wolper, a senior analyst at Morningstar. “He’s trying to figure out what a company will be like five years from now, and he is not afraid to make decisive calls.”
From an early age, Leverenz has had a bit of a contrarian streak in him. In the late 1980s, a time when Japan and its red-hot economy had become a fascination for Americans, he opted to study China in college. He earned a Masters degree in international economics and started his career as an analyst in Taiwan instead of on Wall Street, where Internet mania was about to trigger a ferocious rally.
He’d rise to director of pan-Asian tech research at Goldman Sachs before moving to OppenheimerFunds in 2004. Three years later, he was handed the reins of its flagship emerging-markets fund. By the time OppenheimerFunds was folded into Invesco in 2019, the fund’s assets had ballooned from $11 billion to $40 billion.
Part of the success came down to his willingness to plow a huge amount of money into a handful of stocks, and often hold them for years, ignoring economic conditions along the way. His top 10 holdings account for more than half of the fund’s assets.
Seeing himself as a business consultant rather than an average investor, he’s adopted an almost-activist approach, volunteering his advice to the CEO at Yum China Holdings on how to strategically approach ESG issues, or presenting restructuring plans to Mexican Coca-Cola bottler Femsa. When executives don’t listen, he walks away, often as the companies’ largest investor.
Earlier this year, he sold out of Zee Entertainment Enterprises, India’s largest-listed television network, after losing a bitter battle to shake up management.
Danger of Decisiveness
More than almost anything else, Leverenz’s method is one that lends itself to exaggerated triumphs and equally substantial losses.
In the wake of the Covid pandemic, Beijing regulators caught him off guard when they cracked down on private firms from e-commerce to education, all but wiping out his investments in Chinese tutoring companies. Just months later, he wrote down all Russian holdings — about 9% of the entire portfolio — to almost zero as sanctions snarled President Vladimir Putin’s economy following its invasion of Ukraine.
By the time Leverenz decided he needed to sell in early 2022, it was too late. There weren’t enough big investors willing to buy. Still, he insists that bets on Novatek and Sberbank of Russia were no mistake, pointing to local share-price recoveries on the Moscow exchange.
Morningstar’s Wolper has noticed a subtle shift in Leverenz’s approach after the Russia debacle.
“He’s still using the same approach, though the concentration at the top is not as large,” Wolper says. He points to Taiwan Semiconductor as a prime example: It made up 7% of the fund’s total assets in April, down from 9% at the end of 2021. “It’s not a drastic change, but I think it did have an effect.”
Leverenz acknowledges he thinks more about geopolitical risks and is aware, of course, that his investment in Taiwan Semiconductor would be in peril if US-China tensions boiled over.
But he makes little of the notion that he’s shifted his approach. If anything, he says, he’s more committed to it than ever. He’s resumed week-long trips to check up on the companies he’s invested in — “his precious things,” as he calls them — and is throwing dinner parties in his Manhattan home again, playing host to the CEOs of those companies. Even though the size of his bets has shrunk a little, he’s still stockpiled what are, by any other fund manager’s definition, massive stakes in some stocks that he plans to keep for years.
Odysseus and the Sirens
There are moments, Leverenz knows, when this long-game approach will look like a bust.
Other assets will produce dizzying gains in a matter of months that dwarf his returns. His son harshly reminded him of this during the pandemic, boasting about how he’d turned $500 into $5,000 by investing in cryptocurrencies while his father’s stocks sputtered. Leverenz, though, just can’t get himself to chase gains he believes are being propelled higher by some fad or mania that will recede as quickly as it emerged.
This is where his whole Odyssey metaphor kicks in. In it, the sirens represent the lure of short-term gains, and the lashing to the ship’s mast represents his focus on the long term.
“We’re not going to be seduced,” he says. “What we do works.”
–With assistance from Maria Elena Vizcaino.
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