Top Performer Winters Sees Stocks Rising to Record on Government Stimulus

David Winters, manager of two of the best-performing mutual funds over the past decade, said global stocks may rise in 2011, possibly sending benchmark indexes to record highs as the government helps stimulate economic growth.

Winters, who favors stocks in emerging economies in Asia such as Indonesia, Malaysia and South Korea, said many U.S. companies still look attractive. American equities will do “OK” this year, he said.

The MSCI Emerging Markets Index has advanced 145 percent from its low in March 2009, while the MSCI World Index of shares in developed nations and the Standard & Poor’s 500 Index each jumped 90 percent. Equities gained as central banks kept interest rates near record lows and governments spent trillions of dollars to spur growth. The gauges must rise 15 percent, 29 percent and 22 percent, respectively, to surpass their all-time highs set in 2007.

“You’ve had an enormous amount of stimulus that’s been applied almost everywhere in the world,” Winters, 48, who oversees the $1.4 billion Wintergreen Fund from Mountain Lakes, New Jersey, said in a telephone interview. “The economy seems to be getting better. There are still many stocks that are not expensive. There’s potential upside in the markets.”

Photographer: Daniel Acker/Bloomberg

David Winters, chief executive officer of Wintergreen Advisers LLC. Close

David Winters, chief executive officer of Wintergreen Advisers LLC.

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Photographer: Daniel Acker/Bloomberg

David Winters, chief executive officer of Wintergreen Advisers LLC.

The MSCI emerging market and world indexes and S&P 500 are historically cheap even after rallying for nearly two years, trading at 14.6, 16.2 and 16 times earnings. Their price- earnings ratios are 16.9, 22.5 and 20.2, according to data since 1995 compiled by Bloomberg. The global economy will grow 4.2 percent in 2011, the Washington-based International Monetary Fund estimates.

‘OK’ Returns

“There are a lot of companies that you can buy into in the U.S.,” he said. “In general, high-quality, larger companies have lagged, and the irony of this whole situation is that you can buy really good quality at very reasonable prices.”

The S&P 500, comprising the largest U.S. companies, is down 18 percent since its record high on Oct. 9, 2007, while the Russell 2000 Index of smaller stocks has fallen 5.3 percent from the same day.

His Wintergreen Fund, which returned 21 percent in 2010 as the S&P 500 produced profits of 15 percent including dividends, has beaten 95 percent of its peers over the last five years, according to Bloomberg data. Before that, Winters spent 18 years at Mutual Series, founded by value investor Max Heine. He oversaw the Mutual Discovery Fund from 2000 to 2005, also outperforming 95 percent of rivals in the world stock category, according to data from Chicago-based Morningstar Inc.

Ben Graham, Buffett

Winters, who uses the value investing strategy pioneered by Benjamin Graham, said he buys high-quality stocks and keeps them for years. At the end of the third quarter his holdings included Warren Buffett’s Berkshire Hathaway Inc., based in Omaha, Nebraska; New York-based Goldman Sachs Group Inc., the most profitable securities firm; and diversified mining company Anglo American Plc of London, a regulatory filing showed.

In Europe, Winters prefers stocks from countries that are not tied to the euro, such as Switzerland-based Nestle SA. The investor, who once called the euro a “sick” currency, said he’s still worried about its depreciation.

The euro, which fell 6.5 percent against the dollar last year, has rallied this week amid speculation European Union leaders will boost efforts to contain the region’s debt crisis. The 17-nation currency had its biggest four-day gain versus the dollar since March 2009 as European Central Bank President Jean- Claude Trichet signaled an increased risk of inflation.

“The euro has got real problems,” Winters said. “There are a lot of countries that are really in rough condition. They have a lot to do.”

Equities Over Bonds

Winters said he prefers equities to U.S. Treasuries. He says that investors in general are still frightened about global economic growth prospects and the European debt crisis.

Investors resumed redemptions from U.S. stock mutual funds in the first week of 2011 and moved back into bonds, the Washington-based Investment Company Institute said on Jan. 12. Customers pulled $4.2 billion from domestic stock funds, following deposits of $456 million the prior week. Equity funds that invest outside the U.S. attracted $2.4 billion.

“People are in general on the sidelines,” Winters said. “In aggregate, there are very few people who are willing to do the work and to be long-term investors. People are afraid of headlines. People focus on macro, not on business specifics. There are lots of reasons to be optimistic.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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