In international holdings, we added Prudential PLC (PUK, Financial), a global life and health insurance provider, to the Fund during the quarter. Although Prudential is headquartered in the U.K., we estimate that over 90% of its value is derived from Asia, where it possesses strong franchises in Hong Kong, Indonesia and China. Over the past decade, Prudential’s Asian franchise has produced impressive double-digit growth in profit and value creation while generating a return on equity of more than 20%. This strong performance has been driven by two structural tailwinds that we expect to continue for many years to come. First, Asian consumers’ increased wealth has significantly driven demand for insurance and financial planning products. Secondly, a massive demographic transition has created an aging population increasingly in need of retirement-related products and services. Yet, the penetration of life and health insurance in Asia remains relatively low compared to other markets. In addition to the structural benefits of the Asian market, we believe Prudential enjoys strong brand recognition, significant scale and financial stability, giving it an attractive competitive position. Finally, its adept management team spun-off the company’s European operations in 2019 and is preparing to do the same for U.S. operations, which will then enable the company to focus exclusively on the strong Asian market. Although the quarantine has made it difficult for Prudential’s agents to sell new products, the outbreak has not materially affected insurance-related payouts. We also believe that any setbacks Prudential experiences will likely be temporary and that the pandemic will actually increase awareness about the importance of both health and life insurance products. Yet, the broader market downturn has enabled us to purchase Prudential at a highly discounted valuation on both an absolute and relative basis.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund first-quarter 2020 shareholder commentary.
