Global Investing Without The High Wire
The global economy may be getting more and more complex, but Patrick Deane and Alex Tedder still like to keep it simple. With a concentrated portfolio of no more than 40 stocks (all non-U.S.), the London-based co-managers of the no-load Deutsche International Select Equity fund racked up a total return of 88.8% in 1999 and 13.5% more through Mar. 31. Most of the performance comes from combing developed markets for undervalued midcap stocks. Last October, they opened the fund, which had been just for institutions, to retail investors. Deane, 37, and Tedder, 35, discussed their investment philosophy recently with Joan Warner.
Q: How do you arrive at just two or three dozen choices out of the whole non-U.S. stock universe?
A: Deane: The team gathers ideas from Deutsche Asset Management analysts all over the world. We'll get as many as 3,500 suggestions and sift them down to 300 or 400, with broad regional diversification. For the final layer, we look at cash flow, management, and see where the growth is.
Tedder: If we're looking at, say, insurers in Europe, we might compare [France's] AXA with Marschollek [a German financial-services provider]. Marschollek is a growth stock--we think it has a 50% upside.
Q: When do you sell?
A: Deane: We set a price target for each position, and until that is achieved, nothing happens. Then we rebalance. Last year, [Dutch data network provider] Equant was one of our top performers. We still like it, but we had to take profits. Our turnover is relatively low.
Q: What's your take on Internet stocks? Are they hopelessly overvalued?
A: Deane: We can find plenty of upside in Old Economy stocks. At the same time, we believe in the importance of the Internet. But we're very suspicious of some of the dot-coms. With many of them, management is untried, barriers to entry are untried, content may be of questionable value, the ideas are not patentable, and first-mover advantage is the only thing a lot of them have.
Q: Global stockpickers love telephone companies, and you're no exception.
A: Deane: We tend to favor growth stocks more than value stocks--they're more interesting. For my money, the cellular area is still very attractive. We've picked the best of breed in three categories: Nokia in handsets, Ericsson in cellular infrastructure, and Vodafone AirTouch in network operations.
Tedder: We also think [Portugal's] Telecel has great potential in terms of catch-up--it's valued at about a tenth of what it's worth per subscriber.
Q: U.S. investors are nervous about the market. Are they right?
A: Deane: We share the general concern that U.S. valuations might be a little bit stretched. European midcap stocks look more competitive. To us, it doesn't matter how good or bad a stock market is. There are always going to be individual opportunities.