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Canadians Should Invest More Abroad to Tap Growth, Franklin Templeton Says
Canadians should invest more abroad to tap cheaper stocks after indexes in the U.S., Europe, the U.K and Japan underperformed the Toronto stock market over the past three years, Franklin Templeton money managers said.
Canada’s performance versus other developed markets has been a historical anomaly, Lisa Myers, lead manager of the flagship Templeton Growth Fund, said in Toronto yesterday. MSCI World Index stocks now trade at $1.70 per dollar of book value, down from an average of $2.70 in the 13 years ending in August 2008, Bloomberg data shows. Stocks in the Standard & Poor’s/TSX Composite Index trade at $1.88 per dollar of book value.
“Investors seem to be overlooking some very powerful countervailing forces to the world’s debt problems,” said Myers, whose fund has $15.8 billion in assets. She cited share valuation and prospects of growth after corporate cash on hand at Stoxx Europe 600 and S&P 500 index non financial companies soared to more than $2 trillion at the end of last year.
The S&P/TSX has outperformed rival equity benchmarks since July 2007 as Canada, which expects to be the first G-7 country to start running budget surpluses again, lured investors with its fiscal strength and a banking system that has made it through the financial crisis without a bailout or failure.
Templeton International Stock Fund is overweight in the U.K., Netherlands and Norway, meaning it has a greater percentage of its holdings in those countries than a benchmark index would.
Cadbury Stake
Franklin Templeton’s Mutual Discovery Fund has kept its foot in Europe through stakes in companies like Cadbury Plc, which was acquired by Kraft Foods Inc. in March for about 11.7 billion pounds ($17 billion), the managers said.
“There are a great number of European companies which have very little to do with Europe, which derive a very great portion of their revenue and earnings from regions like North America and particularly Asia,” said Philippe Brugère-Trélat, co-lead manager of the $15.7 billion Mutual Global Discovery Fund, which has outperformed 83 percent of funds with similar objectives this year. “These companies have been painted with the same brush in the indiscriminate markdown of European equities.”
One such company is A P Moller-Maersk A/S of Denmark, owner of the world’s largest container line, which got 52 percent of its revenue from outside of Europe in 2008, the last time it reported such a figure.
The Mutual Global Discovery Fund, which has almost doubled over the past decade, became interested last year when the company was “probably the most-heavily shorted stock in the European equity universe,” Brugère-Trélat said.
“We like to go where it’s unpopular. We like to go where it’s complicated. We like to go where analysts shy away because it’s opaque,” Brugère-Trélat said.
Maersk shares have soared 62 percent over the past year, compared with an 8.3 percent gain for the MSCI World Index.
Myers, Brugère-Trélat and other managers from units of San Mateo, California-based Franklin Resources Inc. spoke at Franklin Templeton’s Investment Outlook and Opportunities Forum 2010.
To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net.
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