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David Winters of Wintergreen Fund on how to tap into the Far East's emerging consumer class
A dramatic global change was accelerated by the economic crisis. A couple of billion people in the Far East, India, and parts of Latin America have joined the economic party. They see everything we have and are willing to work hard to get it, too. They want to look good, eat better, be entertained: basic human desires. So we like consumer names, and oil. You've got an incremental couple of billion people who want cars and motorcycles. To play on higher oil prices, we try to find oil resources in countries that have good legal systems and also good management. The management of Canadian Natural Resources (CNQ) owns about 4% of the company. CNQ is worth a lot more than 76, which is what it trades for now.
We also own shares in a company called Genting, listed in Malaysia, a gaming company capitalizing on the demand for entertainment—they have Universal Studios on their property in Singapore. On the other hand, we trimmed our position in [U.S. gaming company] Wynn Resorts; it has some attractive overseas assets, but the U.S. consumer went into deep freeze. Another holding is Swatch, the watchmaker, which is doing well in the Far East. Tiffany, which was having challenges with its watch line, is outsourcing high-end watches from Swatch.
We look for repeat human behavior. People are going to eat chocolate bars 100 years from now. We owned and bought more of Nestlé during this period. It is earning an increasing amount in the Far East. One thing we've thought a lot about during this global crisis is pricing power and currency diversification. One of the beauties of Nestlé is that it can generate streams of increasing free cash flow. This helps to protect you as an investor.
Wintergreen's direct exposure to the U.S. is at the lowest it has been in my 25-year career, 70% outside the U.S. today. The U.S. and European multinational companies we invest in are ones with major global exposure. Coke is listed in the U.S., but roughly 80% of its earnings are abroad. Our largest investment is Jardine Matheson, a 178-year-old conglomerate with activities in China and Southeast Asia. Jardine dominates Indonesian auto manufacturing and will capitalize on increasing car ownership there. The stock trades at a discount of about 35% to net asset value.
Jardine has a controlling interest in Dairy Farm, a supermarket chain that owns other retailers and has 5,000 stores in Southeast Asia, with modest operations in China and India. Dairy Farm's margins are equal to Wal-Mart's, but it is a company that almost no one has heard of. Jardine really is a Western company. You get transparency, and the family and management own about 16% of the company, so their bacon is frying along with the other shareholders'.
The Stats: Wintergreen Fund/WGRNX: $1.1 billion in assets; annualized return since 2005 inception is 6.1%, placing it in the top 20% of its world stock-fund peers, through Apr. 12. Mutual Global Discovery fund/TEDIX: Annualized return of 9.1% landed it in the top 10% of peers during Winters' 2000-2005 tenure, according to Morningstar.