David Herro: Finding Value In International Equity MarketsVW Staff
Portfolio Manager David Herro discusses the role of active management, how volatility can provide opportunity and today’s outlook for global growth.
David Herro: Finding Value In International Equity Markets
Active management definitely has a major role to play in anyone's investment portfolios why we as active managers make decisions based on the attractiveness of the underlying equities. Now granted the counterargument of course is that all active managers outperform. But if you can find an active manager that outperforms using a sound philosophy execute it in a disciplined fashion that is the route to outperformance. The volatility of 2018 comes after a very quiet almost two years perhaps almost two quite so all it took was a little bit of geopolitical instability starting with talks of trade wars. Perhaps the Italian election in Europe and the inability of the Italians to form a government provided very volatile share prices. Now we are exposed to a lot of these places in Europe were exposed to automobile makers and this look this noise and noise caused by these events to us was not at all indicative of what was happening with the underlying intrinsic value the businesses and the volatility of Coal share prices to move violently in one direction. And if the movement an intrinsic value of a company does not match it that provides us with an opportunity. And what we've seen in the first half of 2018 is share prices generally moving down whereas the intrinsic value actually has gone up thereby providing us opportunity for which we could take advantage of for our clients and shareholders. We're heavily invested in Europe. We're pretty well concentrated there not because we want to be involved in Europe or we like the European continent. We like only European museums know what's attracts us to companies based in Europe is the valuation.
So these companies are trading at a significant discount in many cases to their peers around the world. Now to us where a company is located it's not really that much of a concern. What's important is where the company is doing its business. Where do sales revenues and most importantly where does their cash flow come from. And most of these companies have widely diversified exposures. And just because they're domiciled in Europe where you have some of this political instability it's hit their price again another market inefficiency which we could exploit as medium and long term value investors. As we look around the world today we see if anything business conditions are at least stable and if not better than they were in the last few years certainly led by the United States we're seeing extremely robust growth. China is still growing at between 6 and 7 percent. Europe is growing faster than they have. Perhaps it's a bit disappointing that they're not growing faster but the economic growth of Europe has picked up. So what we're actually seen around the world is better business conditions. And when you overlap the falling and weak share prices again this means value. This means that we have greater access to value. You have prices down and earnings and cash flow growth going up means something that's positive over the medium and long term for investors.