Investors eager to find compelling value plays might have to look a little farther than they did in the past, according to two portfolio managers.
“The most compelling opportunities are no longer in North America but in companies domiciled overseas or focused on the world beyond the U.S.,” said David J. Winters, chief executive of Wintergreen Advisers LLC and portfolio manager of the Wintergreen Fund.
In a panel discussion on finding value in retirement income investing at the InvestmentNews 2011 Retirement Income Summit, he said that he has seen a “huge preference for holding bonds” right now. But Mr. Winters called the world “beyond North America and Western Europe” an area of opportunity that too many investors overlook.
“There are a couple billion people enjoying the party, and they want everything we have,” he said.
“How do we clip a coupon off a couple billon people in China? It creates an amazing opportunity,” Mr. Winters said.
Mr. Winters, who has been described as a “value maven” by Morningstar Inc., puts his money where his beliefs are. He said that 75% of his portfolio is invested overseas.
Likewise, Matthew McLennan, successor to the legendary Jean-Marie Eveillard as portfolio manager of the First Eagle Global and Overseas funds, said during the session that his fund is about 70% invested overseas.
In an informal, hands-raised survey of the 250 or so financial advisers in the audience, only about half a dozen said that they are 70% or more invested overseas.
A sizable number of hands went up only when moderator Consuelo Mack, host of public television's “Consuelo Mack WealthTrack,” got down to 25% invested overseas. The S&P 500 is only about 40% U.S.-based, she noted.
Investors who stick to the United States miss out on some great buys, including Nestlé SA (NSRGY), the Switzerland-based food manufacturer, which Mr. Winters called “better than a bond” for its reliable dividend schedule and annual price appreciation. Another stock in his portfolio is Compagnie Financière Richemont SA (CFRUY), which owns Cartier International SA Genève, which he called the most global jewelry and watch brand in the world, as it gets 40% of its sales revenue from Japan and other Asian countries.
“Another secret of investing is that sometimes a competitive advantage is very local in nature, with distribution, sticky brands, those kinds of advantages,” Mr. McLennan said.
One example might be Malaysian company Genting Group, which Mr. Winters called the most successful gaming and entertaining company in the world and a favorite in Asia, where gambling is embraced by a larger proportion of the population than in many other parts of the world.
Mr. Winters said that five years ago, he was only 35% invested overseas. One of the U.S. positions that he has been reducing is a favorite of value investors: Berkshire Hathaway Inc. (BRKA), which he said is “evolving” into a slower-growth phase where returns will be lower than in past years.
“We like Berkshire Hathaway Inc., but we see bigger, slower, fatter pitches out there,” Mr. Winters said. “Berkshire is an elephant, not a greyhound.”
In the audience, about 20 advisers raised their hands to indicate that they hold shares of Berkshire Hathaway.
At Berkshire Hathaway's annual meeting last week, Warren E. Buffett, the company's chairman, said that the company's annual growth rate probably will slow from past years, when the company consistently trounced the S&P 500. He has warned for years that his company can't continue its market-beating performance forever, especially as it gets bigger.
“This time, I think he means it,” Mr. Winters said.
Instead, he sees Fairfax Financial Holdings Ltd. (FFH:CN) of Toronto as an up-and-coming insurer much like Berkshire Hathaway was decades ago.
Another Asian company that Mr. Winters likes is Hong Kong-based Jardine Matheson Holdings Ltd. (JMHLY).
“We are drawn to what everyone else doesn't like,” he said of the conglomerate, a sector that has been out of favor for some time.
In terms of investing in sectors that other investors are avoiding, Mr. McLennan said that he put investments into Japan before and during the upheaval caused by the earthquake there in March.
“Sometimes you have to go where the stress is,” he said.
As a hedge against a major economic downturn, Mr. McLennan owns gold, while Mr. Winters buys gold-mining stocks.
“We are in a world where in most western governments and Japan, the currency printing presses are running really fast,” Mr. Winters said, which is a reason for investing in companies with exposure to gold.
“How are you going to protect your current purchasing power and make it grow in the future?” Mr. Winters asked. “We are increasingly interested in that.”
