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FEM Q4 2023 Manager Letter

14 février 2024

Palace of Culture and Science & city skyline at night, Warsaw, Poland.

The strategy focuses on investing in frontier and emerging market companies that our team expects will benefit from demographic trends, changing consumer behaviour, policy and regulatory reform, and technological advancements.

Below, we explore some of the key factors influencing returns and share observations on the portfolio and the markets.


The strategy saw strong returns from the internet portfolio in the quarter. We capitalised on share price weakness in (ALE), Poland’s leading online marketplace, following a partial sell down by its private equity majority shareholders. Allegro boasts over 14.5 million active buyers in Poland and generated ~$13 billion in gross merchandise value in the last twelve months, securing a clear market lead with a ~35% share of online retail. Under new management over the last 18 months, the company has demonstrated an impressive capacity to enhance commercial terms with merchants and suppliers, increase advertising revenue contribution, and instil much-needed cost and capital allocation discipline. Furthermore, the company is growing its market share and improving engagement through a heavier focus on its SMART! program (akin to Amazon’s Prime). These efforts have driven a noticeable increase in the take rate to 11.9% as of Q3 2023 (a top-quartile take rate amongst EM e-commerce peer group) and underpinned a sustainable operating margin profile of nearly 20% in the nine-month period ending September 2023. While we acknowledge that the overhang from its private equity owners will remain for some time, we plan to take advantage of opportunities to add to our Allegro position as those sellers continue to divest their stake in the business.

Continuing with Emerging Europe, the strategy also saw strong returns from BCG Classifieds Group (BCG), the leading online classifieds group in the Baltics with a dominant position in auto, real estate, jobs and services, and generalist marketplaces in Lithuania and Estonia. BCG’s shares reacted positively to a strong set of results in the second half of 2023, with revenue and operating profits growing 20% and 36% year-over-year (y-o-y), respectively. BCG exemplifies the dominant, unassailable position of a leading classifieds business. In Lithuania, it is six times and 21 times larger than its closest competitor in auto and real estate classifieds, respectively. In Estonia, it is 29 times and 16 times larger than its closest competitor in those categories. This dominance only grows with time, as buyers and sellers find that the largest opportunity to transact (i.e., marketplace liquidity) is with the clear market leader. Management has effectively reinforced the company’s leadership position whilst making prudent capital allocation decisions, including share buybacks and reducing capital throughout the year.


The healthcare portfolio delivered strong returns in the quarter, led by Medikaloka Hermina (HEAL), the Indonesian healthcare provider. HEAL’s share price reacted positively to a strong third-quarter earnings report that showed 22% and 72% y-o-y growth in revenue and EBTIDA, respectively. The profit margin expansion at HEAL reinforced our belief in the company’s potential for profitable growth from its 47 hospitals, whilst scaling up the network to take advantage of the vast opportunity that Indonesia’s 250 million population provides. That said, we took advantage of the strong share price reaction and reduced our exposure to HEAL on account of valuations.

We also saw positive contributions from Integrated Diagnostics Holdings (IDHC) in Egypt due to insider buying, and AGP Pharma (AGP) in Pakistan owing to the country’s improving macroeconomic outlook. We acted on the positive share-price movement at both companies, reducing exposure in Egypt, and exiting Pakistan.

Additionally, we invested in a Thai healthcare provider focused on medical tourism (~70% of revenue). Thailand, ranked as the eighth most popular tourist destination globally, has developed a formidable medical tourism infrastructure over the last 20 years. The company we invested in has established a reputable brand among relatively affluent patients from the Gulf countries, Cambodia, Laos, and parts of the subcontinent.

Financial services

The strategy experienced weak performance from the financials portfolio in the quarter, affected by Indonesian microfinance and UAE banks and financial services. In Indonesia, persistent asset quality pressures continue as low-income households face considerable challenges with disposable income and their ability to make good on loans. Although we anticipated election-related spending to trickle down to this segment, it appears unlikely to significantly change the outlook for these households. There may be more clarity after the Indonesian presidential elections, expected to conclude in June 2024. Accordingly, we decided to scale back our exposure to this theme until more policy clarity emerges after the elections. In the UAE, we remain bullish about the financial services opportunity set and have been adding to our exposure there throughout the quarter.

Consumer portfolio

The strategy’s Asian consumer staples portfolio performed poorly in the quarter. Weakening consumer purchasing power is adversely affecting demand across a range of consumer categories, including health supplements in Indonesia, beer in Vietnam, paints in Thailand, and tiles and sanitary ware in the Philippines. The region’s consumers are generally cautious, and we expect this to continue until inflationary pressures subside. We have been reducing our exposure to consumer stocks in the region but remain invested in our highest-conviction consumer companies, as their valuations appear very attractive to us.


As we move into 2024, our team feels confident in the portfolio, buoyed by a powerful combination of expectations of strong earnings growth and attractive valuations. While the environment remains challenging for many economies we invest in, emerging green shoots make us more optimistic about the future. We look forward to updating you on the strategy as the year progresses.

Groupe financier Connor, Clark & Lunn Ltée
février 14th, 2024