Diversify Your Global Portfolio


Investors interested in global stocks will find at least one similarity to the U.S.: Consumer staples is a sector to bet on now. Rajiv Jain, manager of international investing for the Vontobel funds, sees that arena as offering "a lot of value," and thus the Vontobel International Fund (VNEPX) is currently about one-third in consumer staples.

Jain adds, however, that diversification is still the key to success. Beyond that, he says, "We're looking for things that have been hit and are near a bottom." Around 40% of the international fund is invested in Britain, but it has recently been buying in South Korea. He points out, though, that he invests in a stock he likes, not in the country per se.

These were a few of the points Jain made in an investing chat presented May 1 by BusinessWeek Online on America Online, in response to questions from Karyn McCormack of BW Online. Following are edited excerpts from this chat. A complete transcript is available from BusinessWeek Online on AOL, keyword: BW Talk.

Q: Rajiv, are you seeing many values in foreign markets these days?

A: Looking on a global basis, it's hard to say that we're not finding any value, because there's always something going on somewhere. We're looking for things that have been hit and are near a bottom. We've found a lot of value in consumer staples.

We look for high-quality growth in companies that have generated high return on equity and have high-quality assets. Our international fund is around a third in consumer staples globally. Britain continues to be a place where we've found a lot of value in the European context. We have around 40% of the Vontobel International Fund in Britain.

Q: What other markets do you like besides Britain?

A: At Vontobel in New York, everything is based on pure bottom-up picking. If you like something in the U.K., it's because you like a stock, not because you like the country. A big part of our index is in Hong Kong, but there are complications because of the SARS issue. We recently added Esprit, and most of the money they make comes from Europe and the U.S. They've been growing in double digits for the last few years and will likely be up 15% this year. So the stock doesn't have much to do with Hong Kong per se, but the recent sell-off made it easy for us to get in.

The other country that we've actually been net buying in is South Korea. There's always a reason why markets start going down, and recent buying activity has been created because of the North Korean issue. What that means is that things are cheap, and there are a couple of names that we like (but owned for some time already).

The biggest one is Amore Pacific Corp.... It's the largest cosmetics company -- 30% market share. It's selling at 6 times earnings. Customers tend to be loyal to their brands when they use cosmetics, even if prices change, so there's high customer loyalty and high barriers to entry for new competitors. We have nearly 5% of our fund in South Korea. We've got a lot of [investments in Asia]. In Europe we've got a lot in Spain, Switzerland, and the Netherlands.

Q: What's your take on how SARS will affect the Asian markets and economies?

A: In my humble opinion, because these things are so unpredictable, looking at similar things that have happened before -- for example, Chernobyl in Russia -- I don't believe there will be any long-term impact. This quarter will be hit, but even 12 months down the line, I don't think there will be any impact. It's more of a hiccup than a theme.

Q: Are you making any bets on companies that may help rebuild Iraq?

A: Nope, I'm not. We really don't have any exposure either way. We want things that can be sustained on a long-term basis. It's just a style issue -- we don't play that game. We try to avoid that.

Q: How are tech stocks looking in foreign lands?

A: Well, generally we haven't found too many tech names outside the U.S. For our fund, we have zero tech exposure. The reason is the earnings picture still looks rather weak, and the stocks seem to be discounting a pretty rosy recovery.... It's hard to say where the rebound would start, but I would guess the first place would be Taiwan. The foundry hub of the world is there -- and it's where the majority of chips are made. We're already seeing some signs of stabilization there.

Q: Besides consumer stocks, do you like any other sectors? What about energy?

A: On the energy side, we did have some exposure, but we sold out of there in late February, early March.... However, there are some cheap ideas. For example, Signet (SIGY) is a good one. They own Kay Jewelers, which is everywhere in the U.S. They're growing in double digits, a high return on equity, selling at nine times earnings. They were up last year when times were slow.... We see upside in plenty of other areas, including financials, so there's no need to be speculative on energy.

Q: Which financial companies do you like? It seems they would improve as markets head higher.

A: One of the areas within financials where we have big exposure is the retail banking environment. Most of them are turnaround stories and could do very well if the market does well. There are issues with some that have yet to be settled, but we do own Northern Rock, one of the fastest-growing mortgage banks -- very conservative organization, earnings are up last year double digits. They're buying back stock -- one of the few banks that have the money to do so -- and it's selling at a low multiple. Another big position is Banco Popular in Spain.

Q: Do you see more accounting troubles lurking in Europe, or do you think Ahold (AHO) may be the worst of it?

A: I think the worst is over, but there's an old saying, you'll only find out who was swimming naked when the tide goes out. It's my suspicion that we'll find out more as time goes on. Generally speaking, these troubles were fairly prevalent on a global basis. The highly leveraged industries generated most of the troubles. Ahold was one we looked at numerous times, but the leverage itself was a turnoff.

Q: Rajiv, do you think some foreign markets are more attractive than the U.S.? And what's the best way for investors to invest overseas?

A: I wouldn't say foreign markets are better or worse -- it just pays to diversify. Emerging markets, for example, have performed very well since they were written off in '98. Emerging markets on a cumulative basis over the last few years have been up, which is more than can be said for the U.S. or Europe.

There are also currency issues. If the dollar goes down and you're not diversifed, you have no way of hedging your risk. The best way to do this is to just buy a decent mutual fund, because an average person may not have the expertise to diversify across many countries as you should. Investing is a full-time job, not a hobby. It may not be easy for most people, so have the diversification done for you.


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