Q: What is the investment philosophy of the fund and how does it differentiate you from the other funds in your space?

A: First and foremost, we are growth investors. Our basic belief is that earnings and cash flows drive stock prices over the long haul. There may be many other influences over the short term, but ultimately, the earnings power of a company will determine its stock price. So the starting point is growth, but we have a three-legged “EQV” investment strategy, which combines the Earnings growth with Quality and Valuation. Those are equally important inputs for our process. We believe you won’t do well if you overpay for growth or if a company’s earnings quality is low and there’s a low likelihood of materializing the expected growth. This focus on Quality is a particularly important and attractive criteria when investing in emerging markets.

A second differentiator is that we’re “bottom- up” investors. We really seek to add value by identifying the right stocks as opposed to making “top-down” asset allocation decisions. Stock selection is so important because the inefficient nature of emerging markets provides extra potential to really add value by finding the right stocks.

Q: What is your definition of developing markets? Which markets do you focus on?

A: Typically, we invest in the countries represented in the Morgan Stanley Emerging Markets Index, which covers more than 25 global emerging markets. We focus on emerging Europe (including Russia), Middle East, Africa, Asia and Latin America. In reality, however, 90% of the market in Africa is South Africa, while the Middle East for us means mainly Israel, and to some extent Turkey. We divide the team’s research responsibilities on a regional basis and, at the end of the day, our objective is to build a broadly diversified portfolio that provides exposure to many of the world’s exciting emerging markets.

Q: How important is the benchmark for you?

A: We are “benchmark aware, NOT benchmark centric.” We like to go “beyond the beaten path” to invest actively in small-cap and mid-cap stocks, which comprise about 60% of the fund. That’s where we find inefficiencies and the under-appreciated companies, the growth that has not been recognized by the market yet. The large-cap stocks are in the index and tend to be more widely researched. Because they are well-followed, it’s more challenging to find undervalued growth opportunities there.

While many emerging-market funds are largecap biased, AIM Developing Markets Fund is an all-cap fund. We believe this latitude creates diversification benefits for U.S. investors because the small/mid-cap stocks are often less correlated with U.S. markets than the larger-cap index names.

Q: Your stock selection process is very “bottom-up” driven as opposed to “topdown”. Despite this, are there any specific sectors that you believe offer particularly attractive growth opportunities in emerging markets?

A: Several sectors appear to offer particularly good growth opportunities in the emerging markets, including the Consumer Discretionary and Financials sectors, which we think will continue to thrive. Rapid job creation and rising real incomes should help drive sustainable consumer spending and financial stocks may be clear beneficiaries of this. When consumers are doing well, they need more credit (e.g., to buy cars and houses) and thus bank revenue growth can continue to benefit from this ongoing trend. In general, emerging-market countries still have low penetration rates for credit and insurance products. Therefore, growth potential for financial products could remain strong for quite some time.

The Energy and Resource sectors are other areas with attractive growth potential. Beyond benefiting from relatively buoyant commodity prices, emerging market resource stocks often have strong production growth and attractive valuations, differentiating them from many developed-market counterparts.

Q: What are the important factors when you’re building the portfolio or hunting for investment opportunities?

A: We focus on identifying companies with attractive “EQV” profiles. On the Earnings (“E”) front, we look for companies with earnings catalysts, or with histories of growing faster than the market, or with some type of cash flow or sales catalyst. That needs to be coupled with a Valuation (“V”) that makes sense - we don’t like to overpay for growth and, ideally, we look for “yet to be recognized” growth.

As for Quality (“Q”), the core of our portfolio consists of companies with dominant franchises in their local markets. They’re self-financed and that’s another way we manage risk in this space. In our view, the ideal company is one that will be able to sustain growth out of its own cash flows, even if all external flows into emerging markets ceased. Overall, we like to own companies with strong balance sheets, dominant franchises that can withstand unexpected events, and that earn above-average return on equity.

Obviously, we diversify the portfolio across the full spectre of market capitalizations with many smaller, faster-growing companies, but the core of the portfolio consists of very solid “quality” companies. That’s important in light of the historic levels of risk in this space. We see no reason to lower our defenses given many of these dominant franchises appear to offer the potential to continue growing at solid levels for many years to come.

Q: How do you find these companies? What information do you rely on?

A: We like to generate our own ideas as opposed to relying on the Street. The large global brokerage houses tend to speak with the same index-constituent companies making it harder for investors to unearth and exploit market inefficiencies.

We travel regularly to meet with company managements. We find this is particularly valuable with small and mid-cap companies, but probably less so for large-cap stocks. We closely follow corporate earnings releases and talk to local sell-side brokers who may have more in-depth knowledge about the product, the management, or the history of the management.

In addition, we use quantitative models to screen our universe for new ideas, and monitor existing holdings to identify areas of red flags.

Q: What were the root causes of the Asian crisis in 1997 and what changes have been made to improve the overall environment since then?