Many investors are now looking overseas for investment opportunities. U.S. valuations have become rich, leaving many value junkies holding excess cash. Luckily, GuruFocus covers not only international markets, but also Gurus that specialize in non-U.S. markets.
Two managers stand out in this space: David Herro (Trades, Portfolio) oversees more than $78 billion at Oakmark Funds with the lion’s share of that being allocated to his prestigious Oakmark International Fund. Fellow international money manager Francisco Garcia Parames (Trades, Portfolio) runs the flagship Bestinfond fund for Bestinver Asset Management. Parames has outperformed the S&P 500 by more than 1,100% over his 20-year career. His 15.3% annualized rate or return since 1993 puts him in a league of his own.
A quick look at their portfolio sector weightings shows a shared favoritism toward consumer cyclicals.
These stocks are known for their high-flying exuberance in bull markets and quick falls during economic downturns. Each fund has over 20% allocated to this sector and they appear to still be buying. Clearly these men have faith in the continued economic growth of Europe and Asia where the majority of their holdings operate.
To compare this view with Paremes and Herro’s US peers, I combined the portfolios of all 148 Gurus tracked by GuruFocus.com. The list was filtered down to American stocks only and then ordered by the stocks’ combined portfolio weighting. The result is a list of the top ten stocks held by the best money managers in the US (see image below).
Of the resulting list, not one of the stocks fell into the consumer cyclical category. U.S. Gurus are instead choosing to favor financials, technology and consumer staples. This contrast begins to illustrate the underlying belief of more favorable investment conditions overseas.
Each of the previously mentioned international funds also made substantial equity purchases in the most recently reported quarter.
David Herro (Trades, Portfolio)’s largest additions were Lloyds Banking Group (LLOY.UK) and Pernod Ricard NV (RI.France). Lloyd’s has advanced by more than 100% since Herro went long, but Pernod Ricard remains within his fill range. The company produces wine and spirits. Its top brands include Absout, Pernod, Chivas, Jameson and Malibu.
Parames’ big three were Colruyt (COLR.Belgium), Ashmore Group (ASHM.UK) and Koninklijke Ahold (AHO.Netherlands). Each remain within 10% of his original purchase range and are likely worth a closer look. Colruyt is a conglomerate consumer goods firm that operates dozens of subsidiaries in the retail, wholesale and food service industries. Ashmore Group is a growing investment management firm trading at just 12 times trailing twelve month earnings.
Given the gains from Herro and Paremes’ previous stock picks, these names could be the next big movers for these international Gurus.
If you have never invested in companies outside the US borders, this may be a good time to begin. Respected money managers continue to seek value overseas while cutting exposure to domestic equities.
James Hunt of the Tocqueville International Fund recently commented, “The U.S. market in general is fairly valued. I think Europe is cheap. Japan is totally a stock-picking market, and emerging markets bear analysis.” His view is shared by veterans Philip Best and Marc St. John Webb, whose Argonaut fund returned 39.2% to investors last year. Their case for European small caps was recently outlined as follows:
- The Russell 2000 Small Cap index in the US is about 30% higher than its pre-crisis high in 2007, whereas the MSCE European Small Caps index is still 6% below its 2007 high.
- In 2007 the MSCI European Small Cap trailing price-to-book peaked at 2.8 times but currently stands at only 1.7 times.
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