ARM
Morningstar.com
Overseas Managers Go for Growth
Tuesday December 7, 6:00 am ET
By Christopher Davis
In many respects, the overseas markets have resembled those here at home in recent years. Just as in the U.S., value stocks have been on a multiyear run while growth has lagged.
The trend has continued into 2004. Traditional value sectors like energy, industrials, and consumer goods have led the way, thanks to a number of factors, including high oil prices and robust economic growth in developing economies like China and India. Meanwhile, conventional growth areas, such as technology and health care, have struggled.
After foreign large-value stocks' long hot streak, overseas investors may find better values in the growth arena. At least that's what we've been hearing from many international-fund managers. Indeed, they're naming the long-out-of-favor telecom sector as a favorite hunting ground, while others have targeted more-aggressive growth names.
So what are international-fund managers buying? Here are a few examples.
Morgan Stanley Institutional Managers Say Telecom Looks Cheap
Morgan Stanley Institutional Value (Nasdaq:MSIQX - News) managers Dominic Caldecott, William Lock, and Peter Wright are dyed-in-the wool contrarians. When the market zigs, the managers zag to find companies that are trading cheaply relative to their cash flows. In the late 1990s, for instance, they ignored red-hot technology stocks in favor of consumer goods names, a decision that eventually paid off nicely. These days, the managers are homing in on telecom stocks like Vodafone Group (NYSE:VOD - News), French Telecom (AMEX:FTF - News), and Telefonica (NYSE:TEF - News). They point to the sector's high free cash flow yields, which are in the 11% to 12% range. Compared with the risk-free rate of return offered by bonds (around 4%), they say the sector is inexpensive. The managers point to telecom companies' abilities to generate a lot of consistent free cash flow, healthy dividend yields, and active share repurchasing programs.
American Funds Managers Also Fans of Telecom
As is the case with all American funds, American Funds EuroPacific Growth's (Nasdaq:AEPGX - News) portfolio is divided among a number of managers (American calls them "portfolio counselors."). On the whole, EuroPacific Growth is among the more-moderate foreign large-blend funds, in part due to the contrarian, value-oriented strategies many of its managers employ. The managers share buy-and-hold dispositions and add to their picks on weakness, as has been the case recently with France Telecom. They added to their stake in the company in 2004's third quarter. The stock slumped on fears that the French government, which still owns 50.1% of the company, was preparing to sell its stake. French Telecom bears argue that would increase the number of shares available on the open market, putting downward pressure on the stock price. American portfolio counselors rarely talk publicly about their picks, but French Telecom boasts a lot of free cash flow and is paying down debt at a steady clip--two attributes American managers tend to like.
Marsico Manager Favors Larger Names, Gets More Aggressive
Marsico International Opportunities (Nasdaq:MIOFX - News) manager Jim Gendelman is cut much from the same cloth as famed growth investor Tom Marsico. Like Marsico, Gendelman employs a flexible approach, putting together a portfolio with stocks of different sizes and a mix of growth and value fare. These days, he says he's been looking up the market-cap ladder for picks--the fund's market cap has crept up. And he's found the most-attractive names among more-aggressive pockets of the market. Indeed, his recent buys include Ericsson (NasdaqNM:ERICY - News), Reuters (NasdaqNM:RTRSY - News), Research in Motion (NasdaqNM:RIMM - News), and ARM Holdings (NasdaqNM:ARMHY - News).
AI
