Barron's(9/19) Barron's Online:
17 Sep 00:06
By John Kimelman
In an August 2004 interview with Barron's Online Bill Fries was asked about
the economic wild card that scared him the most. His answer: "the potential
impact of runaway oil prices." Since then, crude has risen more than 40%. But
luckily for shareholders in his Thornburg International Value Fund (ticker:
TGVAX), Fries has kept a big weighting in energy stocks. Since launching the
fund in 1998, Fries has beaten the average large-cap foreign stock fund every
calendar year,according to Morningstar, which named him International Stock
Fund manager of the year in 2003. This year, through Thursday, the fund was up
10%, versus 7.35% for its bogey, the Morgan Stanley Europe AustralAsia Far East
Index. Recently, we talked with Fries, who also runs the domestic Thornburg
Value Fund (TVAFX), about his investments abroad.
Barron's Online: BP (BP) is the biggest position in your International Value
Fund. [See table.] Why BP, as opposed to another large integrated energy
Fries: They have a very well-diversified portfolio of production properties.
They acquired Amoco and Arco in the U.S. Those were two stocks that I knew
pretty well, having been an energy analyst years ago. Arco has very good West
Coast refining and Amoco has some of the largest natural-gas reserves among the
major integrated oil companies in the U.S. So, it is a combination of [having]
good properties on the production side and recognizing the opportunities and
the essential dependency on places like Russia, doing joint ventures there,
which, of course does have some risk.
BP is up 26% in the past year. Is it still a good value?
I think it is, in part because of the incremental profit level. You still
have the opportunity for increasing production and increasing reserves, and I
don't think they've changed dramatically. But one thing that has changed
dramatically is the higher price of oil, giving the company much more cash flow
to reinvest. And that is going to give BP a better opportunity to increase oil
reserves over time.
Of your top four holdings, two are in energy and two are in health care. What
does that tell us?
Those are two areas that are core to any society today. The demand for
energy, whether it be for transportation or power generation, has increased as
standards of living improve. There is not going to be less demand. If you look
at a place like China, it's clear that the dream of owning your own car seems
to prevail in emerging markets just as it does here. So, I think the pricing
will be pretty firm. As for health care, the technology is improving to both
find cures for illnesses and help people cope with conditions that come from
our modern society -- like diabetes. Probably 15% of our gross domestic
product now is related to health care.
Speaking of health care, why do you like drug maker Sanofi-Aventis (SNY) so
Well, there [aren't] too many companies that are as broadly based [as] they
are. This company is the product of three companies that were put together, so
there is still plenty of room here for cost savings. They have at least one
product coming that could be pretty substantial. It's called Acomplia and it's
designed for weight loss. This drug is not a sure thing, because it hasn't yet
been through Phase III trials. But they are finding that people who have been
taking this drug [not only] end up losing weight, but also [get some]
beneficial effects on conditions like diabetes and high blood pressure.
When could this drug be commercially available?
Maybe within the next two years -- there is still more testing to be done.
Still, investors are paying a normal price for a company with a potential
blockbuster drug that could really move the stock price needle should it [get]
approved [by the FDA]. Acomplia could be a multibillion-dollar-a-year product.