The World According to Oakmark International
If you think U.S. stocks have done well the past five years, take a look at international markets. Over the half decade to April 23, markets in developed countries (as measured by the MSCI EAFE index) have nearly doubled, twice the return of Standard & Poor's 500-stock index. This year, the U.S. markets continue to lag their foreign counterparts -- up 5% versus 8%. Of course, we're speaking in U.S. dollar terms, and therein lies much of the problem: The greenback continues to go down, down, down against the Euro, British pound, Swiss franc, Chinese renminbi and just about every major currency.
David Herro is actually fairly bullish on the dollar. He's fairly bearish on the Euro and thinks the pound, at U.S. $2.00, is wildly overvalued. But none of this makes much difference to the bottom-up way in which he runs Oakmark International (OAKIX), which he has piloted since the fund's inception in 1992. Herro has through adroit stock selection returned an impressive 14% annualized during those nearly 15 years, some four percentage points better than the average international stock fund.
In the U.S., Oakmark funds are known for disciplined value investing. Abroad, they operate much the same way. Herro says he needs a minimum 30% discount to what he thinks is the true value of a business to entice him to purchase a stock. "We're value people -- we have to consider price," he explains. As in the U.S., International is finding value in big companies.
For example, Herro likes the big German automakers. BMW or Daimler-Chrysler? He owns both, but for different reasons. The Chicago-based Herro says BMW is enjoying steady growth worldwide and is behaving in a more shareholder-friendly manner. Daimler-Chrysler (DCX) is a turnaround story. He says Mercedes car quality is improving and that the company will become more focused once it dumps Chrysler, an acquisition that Herro calculates has lost more than 80% in value since the Germans came shopping in Detroit.
And Herro likes the Swiss banking giants. He holds both Credit Suisse (CS) and UBS (UBS). Wealth management is a growth business worldwide, he notes, and UBS is particularly well-positioned in China, which is minting new millionaires every day.
In pharmaceuticals, again it's the giants such as GlaxoSmithKline (GSK) and Novartis (NVS) that attract Herro. And ditto in food and beverage stocks, such as Nestle, Cadbury-Schweppes (CSG) and Diageo (DEO), the leading purveyor of liquor brands. Herro likes the global footprints of these multinational consumer-staple firms, and he loves the way they continue to demonstrate earnings power from year to year. "I've owned Diageo a long time," he marvels, "and it keeps building value per share over time."
When you build wealth in that way, you don't really need to be a successful currency soothsayer.