The Challenges of International Investing in 2012
Fund Manager Alex Motola
Dan McCoy/Bloomberg News.
Alex Motola, manager of Thornburg Core Growth Fund.
Alex Motola, manager of Thornburg Core Growth Fund. Photographer: Dan McCoy/Bloomberg News.
A lack of transparency poses a dilemma for international investors in 2012, according to Alex Motola, a portfolio manager at Thornburg Investment Management. Whether the worry is corporate corruption in China, bank exposure to European debt or the pace of economic growth worldwide, it's hard to know what's really going on.
In such uncertain times, Motola's funds have fared well next to peers. He manages the Thornburg International Growth Fund, which lost 3 percent in 2011 while beating 97 percent of the international stock funds in its peer group, according to data compiled by Bloomberg. Motola also manages the domestic Thornburg Core Growth Fund, which had a return of 0.6 percent in 2011, topping the returns of almost 80 percent of peers.
Bloomberg.com's Ben Steverman spoke with Motola about his strategy and the challenges awaiting investors. Edited excepts of their conversation follow.
1. What set your international fund apart from peers in 2011?
We weren’t afraid to buy things in Europe, and a lot of people were. We have a significant weighting in the U.K., for example.
There is a certain scarcity value for growth right now. In Europe, there is not a lot of growth. In the U.S., it's muted. In Asia, there's a semblance of growth but you have the specter of fraud and heavy-handed government interaction. So you have to be careful.
We found a bunch of companies in global e-commerce that worked very well. One is Zooplus AG, which trades in Germany and is like the Pets.com of Europe. What probably was an idea before its time 10 or 11 years ago has turned into a business that's growing more than 50 percent annually.
2. Given all the concern about the economy and fiscal situation of the euro zone, why aren't you avoiding it?
In 2008 and 2009, we owned stocks in places like Ireland, Italy and Portugal, and made money in those stocks. It's not impossible. You just need to be very, very selective. The closer the stocks have [to] a dependence on the growth of gross domestic product in that country, the rougher it's going to be. We try to find stocks that aren't correlated to that country's economic growth.
There are also stocks benefiting from austerity. A stock we've owned for a while is Orpea. They operate retirement homes and rehabilitation clinics in France, where the population is aging rapidly. The government can't afford to meet the demand for nursing homes. They need the private sector to step up.
3. What is your view on financial stocks?
It's truly a love-hate relationship. There seems to be tremendous opportunity in some names, but it’s really hard to get a sense for what you’re buying. Banks have been really careful about talking about what their exposures are. Given the threat of a run on the bank, there's no incentive for them to be transparent. You look at what write-downs could do to your equity and it becomes really hard to see what your stock is worth.
We own Credit Suisse. While we still have some discomfort with that, Switzerland remains one of the bastions of safety in an extremely volatile world. Their ability to gather assets globally from high-net-worth individuals remains. We like where Credit Suisse is positioned competitively, but we're worried about what we don't know.
4. Is Asia more fertile ground for growth stocks?
Asia seems to be a pretty popular place. We see the growth, we get why it's attractive, but we're also worried about growth slowing down.
Among Chinese stocks, there is a pretty big bifurcation in terms of valuation. You have companies trading at multiples higher than the U.S. stock market and then you've got companies growing pretty fast that are close to dirt cheap. The reason they're at that level is people don't know which of those companies are legitimate and which are complete frauds. There are companies where we've peeled the onion and said: "Wow, this is not something we want to be involved in because the chance of it being a fraud are too high." This could be a year when we see a lot more of that come to light. You can't not invest in China, but you have to be really careful.
5. What else should be on the radar of international investors?
You could make a case that one or more countries won’t be in the European Union by the end of 2012. If you’re an international investor, you need to think about what that means to you. Companies based in countries that leave the euro would have a new, probably less stable and less valuable currency. If your company does business with the rest of the E.U., it's possible -- but less likely -- that border restrictions and tariffs come back, which would increase costs and lower demand.
If we don’t see a little pickup in the U.S., that’s certainly not going to help the global economy. In the Thornburg International Growth Fund, our companies are all headquartered outside the U.S. Some like Orpea could care less what’s happening in the U.S., but many of them do care. They have customers there, or partners and suppliers. It makes a difference.
In international investing, you typically see the usual suspects loaded into people's portfolios. They might own Nestle and Rio Tinto and a bunch of stuff that everyone in the world knows. There's room to make money there, but everyone can go after that. We've always had a pretty big exposure to what I would call "stocks no one's heard of." One of the best reasons to invest is to go find stuff that's under-covered and under-appreciated, like Zooplus AG and Orpea. If things are going great at Nestle, it's hardly a secret.
To contact the reporter on this story: Ben Steverman at bsteverman@bloomberg.net
To contact the editor on this story: Suzanne Woolley at swoolley2@bloomberg.net
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