Tucked away in the heart of Salem—near a tattoo parlor, a psychic reading shop and down the street from various witch-related attractions—is Cabot Money Management, a local firm with a global outlook. Founder Rob Lutts started peering into Asia’s investment scene back in 2002, before China had truly stepped into economic prominence.
Lutts has been traveling to the Far-Rast regularly since then, taking a boots-on-the-ground approach he says is still rare for American investment managers. He says he also puts an unusually large percentage of clients’ investments in emerging markets – a testament both to his faith in up-and-coming nations, as well as his growing doubts about U.S. financial policies.
Rob Lutts
Title: President and Chief Investment Officer Cabot Money Management; Salem
Age: 54
Experience: 28 years
Q: You say you first got interested in investing in Asian companies in 2002 – how did your trips get started?
A: The reason to go was basically to say “Hey, what is happening in China? Is this real?” At that time they were saying, “They’re doing capitalism but they’re still communists. How can this work?” [There’s] nothing like getting on the ground and seeing for yourself and talking to the people. And now when I go over there, I’m checking on our investments, [meeting] with the CEOs and the leaders of the investments of the industries, checking up on regulation and just seeing how demand is going … I was actually in Singapore this last time, and I met with the banks from China, and retail companies, restaurants, healthcare companies …There is wage inflation – really significant wage inflation. The average company in China that I talked to increased their wages for their employees 15-20 percent over last year. So that’s trickling down into the cost structure.…What I’m interested in, is the average citizen now has 20 percent more income, so I’m trying to invest in places where they’re going to spend it. They’re in the middle of the consumption story today – it’s retail, it’s automobiles, it’s travel, it’s healthcare. …In China, the average person that has diabetes, only one out of10 people get any treatment. Most of them don’t even know they have it, so they may die of diabetes and have never been treated. Same with cancer, a very large number of people have cancer, and they die, and they never really knew they had cancer. So when I hear things like that, to me, the opportunity for healthcare [growth] is phenomenal.
Q: How much do you actually invest in emerging markets, compared to domestic investments?
A: We’re an investment management firm, so we serve high-net-worth individuals, and we [have] about $520 million under management. We put a large amount of it in the emerging markets. I have about a 45 percent allocation to the emerging markets today, and it’s in lots of different countries: China, Singapore, India, Brazil. …. 50 percent of the growth in the world today is coming from the emerging markets, so I have lots of confidence that that’s a great place to go. Now if it’s a more conservative portfolio, we might only have 20 percent allocation to emerging markets, but we do have probably double, even in that portfolio, of what the average person does in their own investments. I think the Wall Street convention today is to have 10 percent [invested internationally] and of that, maybe 4 percent of that might be emerging markets. …What’s unique about our firm is we’re 17 people, we manage $500 million, yet we do get on airplanes and fly to China, to Brazil, to India, and the reason we do that is we need to go there and learn firsthand. I just described some problems in China, diabetes and health care, that are not being met. On the one hand I look at that and say, “Wow, isn’t that horrible?” … And the other part of me says, “Yes, it’s horrible, but wow, what an opportunity for solutions to be created, and what an opportunity for companies to create shareholder value from those situations.”
Q: What did you get out of your latest trip there?
A: This time, particularly, I heard from the [Monetary Authority of Singapore,] basically the Ben Bernanke of Singapore. He spoke and I got to talk with him a little bit. I also spoke with several other leaders of banks in China, and what I came back with is an appreciation that the policies of the U.S. today are in stark contrast with the policies of Asia today. Our policies have a de-capitalizing effect – it’s a negative impact to capital. …Right now, we have low interest rates, and the interest rates are kept low intentionally by the Federal Reserve. Now what’s this doing? It’s throwing savers under the bus. They’re not getting any rewards for their money. …and the second part is just the debt. We have, in the federal government in Washington, this huge, $14 trillion deficit – adding to it in the last few years, almost a trillion dollars a year. Scary stuff. That’s a de-capitalizing policy, because what it does is, it puts a burden and a noose around the neck of every participant in our economy. When I look at what’s going on in China, Malaysia, India, Singapore, it’s the exact opposite. Low tax rates, sound fiscal government, low debt by the citizens – they’re not encouraged to take on debt, and they don’t. When the average person in China buys a car, 90 percent of them are paying cash for that car. Fifty percent mortgages on houses, so they’re putting up half the money to buy a house. Those kinds of policies are very positive. When I came back this time, I noticed it more than any time that I’ve been heading over there … does that make me not want to invest in the U.S. at all? No. But it makes me more wary.
Lutts’ Top Five Positive Things About Emerging Markets:
- They feature low tax rates and fiscal invectives for investors to fund growth capital.
- Many boast modest government regulatory burdens.
- Their conservative, fiscally sound monetary policies build values of local currencies.
- Strong government finances serve to build confidence among outside investors.
- They have a strong, growing cushion of foreign exchange reserves: China has $3 trillion in foreign exchange reserves, Brazil has $330 billion. The U.S. has $49 billion.
