David Herro (Oakmark International OAKIX) and Rob Lovelace (American Funds New World NEWFX) were part of a panel on international values and value traps. Sarah Ketterer was was slated to attend but did not, some other senior Causeway official spoke in her stead.
Herro declared that he's "extremely enthused about what's happening in the emerging markets today ... there are generational changes that are very, very positive for those markets but one still needs to approach them with a fair amount of caution. He noted that 24% of BMW sales were in China last year, up from 0% 10-15 years ago. That signals a fundamental change in the orientation of China's economy.
Lovelace agreed but added that globalization has made a mash out of international indexes (hence index funds and ETFs). The indexes don't account for the source of firm's earnings but obsess about the location of the headquarters building. While the S&P 500 is nominally a domestic index, 37% of its firms' earnings are non-US and about 10% are derived from the emerging markets. European firms derive 50% of their revenues outside of Europe, while 80% of the earnings of British firms is not from the UK. At the same time, the indexes target firms domiciled in the EMs and weight the largest firms most heavily. That's a fundamentally bad decision since large EM firms are clustered in just three industries (commodities, banks, telecoms) which are very poorly positioned to benefit from the secular trends (the rising middle class, for example) that investors find so attractive. In addition, these larger firms are either state-owned or their decisions are state-controlled, leaving their managements powerless to control the firm's fate.
In general, the better path is to remain open to global brands whose products are highly sought after by the EM middle class and entrepreneurs, and whose operations are more transparent and driven by business criteria.
For what it's worth,
David
Comments
Not good for valuations, but good for growth.
David
R
Appears you're comparing apple to oranges ! check out search tools. I hope this helps, Shostakovich.
Have a nice week, Derf
As I look at the portfolio, OAKIX has, over the past 12 months, had huge wins on two European car companies (Daimler +62, BWM +42), a modest win on their single biggest holding (Credit Suisse) and only one stuff at minus 10 or worse. Small Cap's big wins have been a slightly lower returns on slightly smaller positions but there have been a number of them in the up 30 range, their biggest position lags OAKIX's a bit and they've had two at minus 10 or worse.
No answers, just some bits and pieces to stir your thinking.
David
I'm in OAKEX at the moment, but am divesting, now that I'm in GPROX (I know its not the same thing). Greatly respect Oakmark (use them in Roth and taxable), but can't figure this one fund out (Herro's quarterly commentaries are always bland compared to, say, McGregor's). Not terribly thrilled with the other international small cap options out there. May index this sector until something better comes along.
Anyway, cheers !
D.S.