10
Where are the values these days? They’re certainly
hard to find, but Europe and Japan seem like the
only places that you could really argue are cheap today.
I spoke with Mutual Series alumnus David Marcus,
who argues that Europe is the bargain of a generation:
“The situation in Europe is that investors have really
been panicking over the last couple of years because
of the financial crisis they’ve been going through.
It’s a real deep crisis that has really knocked these
countries sort of out of commission, but I think they’re
knocked out in the short run, not in the long run.
And I believe that companies are taking advantage of
this crisis in unprecedented ways. There is a restruc-
turing wave that’s going on.”
Of course, Europe is cheap for a reason: It’s under
stress. We know that the United States was a great
rebound play in
2009
, and we hope Europe works
the same way. But if it doesn’t, then stocks aren’t
actually cheap. Marcus’ comments came before
Cyprus’ bailout mess emerged. Europe has since sold
off a bit, though not as much as I’d have guessed.
You could also treat these ideas as a watchlist to buy
if Europe’s sell-off gains steam.
Japan isn’t so much in crisis as it is mired in a tar pit.
The country has had slow growth and low inflation
for a long time. The newly elected Abe government
is now pushing hard for lower rates to stimulate
the economy and in turn has inspired some to say that
now’s the time for Japan (again). Thus, you at least
have a central bank working in your favor.
BlackRock Global Allocation
’s
MDLOX
Dennis
Stattman says, “The Japanese stock market started
this rally as the cheapest major market in the world.
We now have a combination of value and momentum
that is rare in markets, and that change has been
catalyzed by an impressive landslide victory by Prime
Minister Abe’s party, running on a platform of getting
Japan out of deflation and increasing inflation. And
this is going to be done by both fiscal and monetary
policies with important changes coming at the Bank
of Japan.
Now there’s been so much skepticism about the
Japanese stock market that investors in both Japan
and internationally have very little exposure to
Japanese stocks. In fact, both Japanese government
and corporate pension plans have less than
20%
of their assets in the Japanese stock market. And we
think that combination of value, of price gains,
and of fundamental reasons to expect the Japanese
market to go up is going to lead to broader invest-
ment interest.”
One obvious way to play the above are with Stattman’s
and Marcus’ funds. Marcus runs
Evermore Global
Value
EVGBX
, which is highly skewed toward Europe
but has nothing in Japan, but I wouldn’t buy it with
its expense ratio of
1
.
7%
.
I screened for highly rated funds with hefty weightings
in Europe and Japan. The funds on the list can move
out of those areas if it turns out that some of these
stocks are really value traps rather than value, and I
like that. The Gold-rated
Causeway International
Value
CIVVX
has
13%
of assets in Japan and
72%
in Europe. I also like Gold-rated
Dodge & Cox Inter-
national
DODFX
, which has
12%
in Japan and
71%
in Europe. If you invest through a broker, you may like
the Silver-rated
MainStay ICAP International
ICEUX
, which has
22%
in Japan and
64%
in Europe.
I would also suggest you consider funds that hedge
their currency, as both the euro and yen will be
under pressure because of lower interest rates and
sluggish economics. Stattman says he is hedging
most of his fund’s yen exposure.
Tweedy, Browne Global Value
TBGVX
is run by
value mavens who have strong track records of
separating value from value traps. The fund remains
fully hedged, while
Tweedy, Browne Worldwide
High Dividend Yield
TBHDX
is unhedged.
œ
Europe and Japan Are for Value Lovers
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
