(PUB) Investing 2015

April 2015

Morningstar FundInvestor

15

and battery management. As you know, we are all carrying more portable devices, whether it’s wear- ables, smartphones, or tablets. So, any chipset that can actually improve the battery shelf life is very important to have. And it doesn’t matter if it’s a Google phone or an Apple phone, etc.; we all want to have that power management. Well, Dialog Semi DLG is one of the unique compa- nies in the world that has the monopoly almost on that capability, and so we own that in the German market. So, there is a whole range of opportunities worldwide; you just have to zero in on where the opportunities are that meet our risk/reward criteria. This is a company that’s trading on a high-teens multiple and can grow double-digit earnings for the foreseeable future, after the stock has tripled for us in our strategies in the last three years. So, there are genuinely good, high-quality growth companies in the world, if you have the lens to look for them. That’s where our investment discipline helps us out a lot. Bhansali: We don’t want companies in a sector like energy, which has high operating leverage, to also have financial leverage. So, there are many indebted oil companies, and we have no interest in them. Schlumberger SLB is a premier oil-services company. They are deploying technology to lower their cost position, which in the upswing will help them improve their profit margins but also gain market share with their customers. And Core Laboratories CLB , which is really a testing and R & D company that advises oil companies. So, think of them as a consultant: As Accenture ACN is to your mainstream corporates, Core Laboratories is to the oil sector. It’s a very asset-light company, 100% free cash flow conversion, and the stock has down 60% from the highs. It could go down another 20% or 30% , but that’s how you accumulate positions. œ Kinnel: How are you looking at energy, and can you mention one of the names that you found attractive?

Bhansali Likes Tech I chatted with Rupal Bhansali, manager of Ariel International AINTX and Ariel Global Equity AGLOX , both of which were launched about three years ago. Here is an excerpt of that discussion. Kinnel: Why don’t we talk about where you’re finding ideas in today’s markets? Obviously, the markets have gone up a lot, so some people say there aren’t a lot of attractive ideas. What do you think about that, and where are the best ideas coming from today? Bhansali: Well, we are fortunate because we run two flagship strategies, the Ariel Global Fund and the Ariel International Fund, which means we have a plethora of opportunities to choose from because it’s a very large mandate. In the global fund, for example, we can choose from 3 , 000 stocks, and we typically have only 75 in the portfolio. So, we can be very discerning. I don’t need the entire market to be attractive, just a few stocks. That said, I would say that we are finding more oppor- tunity in different sectors as opposed to different geographies. Most markets around the world have gone up. So, I think geographically, it’s been a chal- lenge. But sectorally, as you can imagine, energy is now throwing up a lot of opportunities. Also, I would say technology. I still think that intellec- tual property is being undervalued worldwide and you will see more and more incidents of the kinds of headlines that you see between Google GOOGL and Samsung SMSGF , and Apple AAPL and Samsung about patents. Patents are a very valuable asset class. So, we are finding opportunity in those companies that own patents. You’d be surprised to know that Nokia NOK is actu- ally a very key holder of patents. A lot of people think of it as yesterday’s story of handset man- ufacturing. Well, they sold the division to Microsoft MSFT , so now really they are much more of a licensing company. Think of them as more akin to Qualcomm QCOM than a manufacturing company. Dialog Semiconductor DLG is another company in Germany, which makes power management chips