Dan Culloton: Something you have touched significantly is emerging markets. You've had the significant stake in both the Global and International Funds and in the Stock Fund to an extent too. Does it still make sense given where valuations are in emerging markets to maintain a very large stake in those developing countries?
Diana Strandberg: Well, we invest in individual companies and we're less focused on whether they happen to be in a developed market or an emerging market where we can become part owners of a company as I said with a good business franchise and attractive valuation. And importantly, that's managed for the long-term owner. We pay a lot of attention to governance.
When we look at the companies that we own that happen to be domiciled in the emerging markets, and I'd like to point out we own many companies that are domiciled in the developed world that have extensive reach into the emerging markets as well. But when we look at the companies that are domiciled in the emerging markets, we think the valuations are reasonable. In many cases, the growth prospects are quite attractive, and the profitability, the margin structures, the returns on capital and the balance sheets are more attractive than their developed market peers.
Culloton: How are your holdings within emerging markets or with exposure to emerging markets insulated or protected from the concerns about rising inflation, particularly commodity inflation across the developing world?
Strandberg: Well, one of the things that we want think about with any company is really, what are the drivers of its margin structure. So, inflation to the extent that it shows up, for example on costs, we want to think about how that might affect margin structure whether the company has pricing power. When we think about how we're positioned and again this isn't a top down mandate, but where we've found investment value in a developing world in particular has been in the area of financial services and in the area of telecom services.
We haven't been as invested in areas of energy or commodities where you're seeing the benefits of rising costs. Copper prices, iron ore prices, oil prices. But where there are second order impacts of rising costs of production for these companies and their margin structures are quite high right now. They are at near if not at new record margins. So, cost pressures, we think could affect margins and then by extension affect share prices. We're also not as heavily invested in consumer staples companies for valuation reasons. We think those are companies that could face some margin pressure as well.