Top managers' foreign investing tips

Two top international [US-based] fund managers argue that there's still a place for foreign stocks in most portfolios despite an increasing correlation between foreign and domestic funds in recent years. Read their views in a report from the annual Morningstar investment conference in Chicago.

Gabriel Presler 3 July, 2001 | 5:36PM
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Mark Yockey, who directs Artisan International, and Robert Lovelace, manager of American Funds EuroPacific Growth, said even though U.S. and foreign markets have behaved similarly of late, that correlation isn't necessarily an accurate prediction of their future course. The managers, who spoke at the Morningstar Investment Conference Tuesday, said that well-managed, profitable, and reasonably priced companies are often located outside of the U.S., and the average investor needs exposure to great companies--regardless of nationality.

Yockey and Lovelace, who were back-to-back Morningstar Managers of the Year in 1998 and 1999, share a similar philosophy about foreign investing, but when they discussed countries, sectors, and the beleaguered state of global markets in depth, some su

rprising differences emerged.

Yockey often emphasizes financial and consumer-staples firms, which puts his fund firmly in large-blend territory--with mixed results. His focus on bank and other financial stocks helped prop up returns throughout 2000's miserable volatility, but it has dragged on performance in 2001.

Meanwhile, Lovelace's growth bent led him to tech and telecom in the late 1990s. That made for staggering returns in 1999, of course, but hurt his fund's performance in subsequent years. Lovelace acknowledged that the fund made some mistakes when it held faltering telecom and wireless stocks for too long. He said the third-generation cellular license bidding wars of 2000 were the last straw in a sector that was overvalued and overextended. Still, Lovelace continues to see these firms as important players in global markets. He feels that many of these companies, particularly firms such as Vodafone, have good cash flow and strong management.

Japan and emerging markets

Both managers remain wary of Japan, the most heavily indebted industrial country in the world, and tend to devote far less than the index weighting to that market. But their strategies within the country are quite different. Lovelace's 16% stake in Japan is focused on exporting firms, which he feels have been more transparent and willing to restructure than companies that focus exclusively on the domestic economy. Yockey, who underweights the Japanese market even more dramatically, is more willing to take on domestic exposure; for example, he favors a few financial firms with access to local debt.

There's a difference of opinion when it comes to emerging markets, too. Yockey tends to buy only the big, blue-chip stocks, such as Mexican telecom giant Telefonos de Mexico. Many of these large-cap issues tend move in tandem with U.S. markets.

Lovelace's approach to emerging markets has changed lately. Many fund managers poured into developing regions in the early 1990s in an attempt to capture the sky-high growth rates of emerging economies, only to be disappointed by relentlessly low stock prices and continuing volatility. Lovelace pointed out that one of the products of higher growth rates--namely, consumer spending--doesn't necessarily benefit the domestic economies of emerging markets. Thus, he now focuses on companies that he thinks will benefit from rapid growth and increasing affluence in developing regions. The fund may purchase a U.S. apparel maker, for example, in an attempt to gain exposure to emerging markets.

This article was first published on on June 27th 2001. Please note when the text refers to a specific, US domiciled, investment fund it may not be available to UK investors.

The Morningstar investment conference took place from June 25th-27th in Chicago. This year it was attended by almost 1200 delegates including fund managers, securities analysts and advisers. It has run annually since 1988.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Gabriel Presler  

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