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Get Four
|  | DECEMBER 19, 2003
By Eric Wahlgren A Wide World of Bargain Stocks Fund manager Wendell Perkins urges investors to look beyond Wall Street and consider equities in Britain, Germany, China, Japan... The U.S. stock market isn't the only one that had a nice ride in 2003. As other countries begin to recover from the global economic slump, many overseas markets have posted big gains. Hong Kong's market is up about 33% year-to-date, Taiwan's has risen around 32%, and even Germany, still struggling to rev up its sluggish economy, has seen its stock market add about 32%, according to statistics gathered by The Economist Intelligence Unit. If investors factor in the U.S. dollar's sharp decline against foreign currencies, these returns turn out to be even more substantial. In U.S.-dollar terms, Germany's DAX index is up around 54% year-to-date. What all that means to Wendell Perkins, portfolio manager of Racine (Wis.)-based Johnson Family International Value Fund (JFIEX ) is that the time is right for investors to think about adding some international exposure to their portfolios. Perkins' fund, which has around $55 million under management, seeks to provide excess returns without a lot of risk by selecting what his team believes are undervalued foreign stocks. As of Nov. 30, the fund was up nearly 29%, slightly underperforming its category, but besting the Standard & Poor's 500-stock index, which had risen about 22% in the same period. GLOBAL CATCH-UP. Perkins, who is also director of equities for the Johnson Family of Funds, argues that it's important to diversify, and he notes that his fund does well in down-market years, since it focuses on value stocks rather than growth equities. In several of the past recent years, the fund has handily outperformed its peers. As Perkins sees it, the U.S. stock market won't always be the leader. In a recent talk with BusinessWeek Online reporter Eric Wahlgren, he discussed current trends in overseas markets and his favorite international stocks. Although Perkins' fund invests in equities listed on their home exchanges, he also talked about companies with ADRs (American depositary receipts) that trade on U.S. exchanges. Following areedited excerpts of their conversation: Q: A lot of news lately has focused on international funds being abused by market-timers who moved quickly in and out of them to take advantage of "stale" prices [because securities can close earlier in different time zones]. Was any market-timing done in your fund? A: Three and a half years ago, we started to see timers coming into our fund. We immediately went to our board and put a 2%, 30-day redemption fee on the fund to discourage it. This way, you have to wait 30 days, or pay a 2% redemption fee, to sell your shares. All redemption fees stay in the fund. That ended it. We haven't had any other issues. The problem that other firms had is they either didn't have redemption fees in place, or they waived them for their preferred clients. That's why of lot of these funds are getting into trouble. Q: From an investing perspective, the U.S. economy is taking off again. But aren't European economies still stuck on the ground? A: The French and German economies have been weak this year. Both are hovering around break-even for the year. But there has been an improvement in both of those countries. It looks like at this point each will grow at just below 2% in 2004, which would be about 50% of what is expected in the U.S. U.S. gross domestic product is expected to grow in the low to mid 4% range. The United Kingdom, meanwhile, has held up very well. Its economic system is freer than Continental Europe's in terms of labor restrictions and government intervention. Growth in the U.K. is expected to be in the low 3% range. Q: What about Asia? A: Asia overall should be a significant contributor to global growth in 2004. It looks like Japan's growth rate could be 2% next year, which would be a wonderful change in direction. We will see better growth, however, from other countries in Asia. China could do 8% or better. And the other major economies -- Hong Kong and Taiwan, for instance -- could come in in the 4% to 5% range. Q: Why does your fund invest in many regions of the world vs. just one region, like some of the other international funds? A: Our fund is meant to be a broadly diversified international fund. We don't believe in making bets on certain parts of the world. We try to bring our shareholders a broad diversification of companies. We always have exposure to Europe, the U.K., and Asia. We tend to overweight or underweight a specific region based on valuation and on the economic outlook for those specific countries. Right now, we are overweight in Asia-Pacific. We continue to believe that the Chinese economic boom will continue. The liberalization taking place in China is deep-rooted. The government, we believe, has become as pro-market-oriented as perhaps its political system would permit. Even though there has been some tension with Hong Kong and Taiwan, China has taken a pretty hands-off approach. The demand that has been generated in China is great for the whole region.
BW MALL
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