14
Inker: Buy U.S. High Quality and European Value
I had a chance to chat with
GMO
’s Ben Inker
about his outlook for the markets. Here are a few
choice quotes:
“All asset classes are to one degree or another trading
higher than their historic averages. You can make a
case that maybe European value and emerging-
markets equities aren’t, but if you adjust for things
it’s not even clear that they are cheap relative to
historic averages.”
“Today you’re getting paid for taking risk. But,
we worry about what happens if cash rates go back
to normal.”
“We like high-quality stocks relative to the rest of the
U.S. market for two basic reasons. One of them is
for one of the very few times in history you can buy
these guys at a discount to the overall market. So
they are trading at a lower P/E than the broad market.
Normally they trade at somewhere between a
10%
and
20%
premium. So, that’s pretty cool. You get to
buy high-quality stocks at a discount.
“The other reason we think they are particularly
appealing versus the rest of the U.S. market right now
is the biggest reason why we dislike the U.S. mar-
ket: It is not its current P/E, but the fact that the earn-
ings that make up that current P/E are at all-time
highs and, from a profit margin perspective, we think
are quite stretched. So we think profit margins are
likely to be coming down over the next three to five to
10
years in the U.S., and under those circumstances,
the quality stocks have this nice feature that their
profitability is much less volatile than that of the rest
of the market.”
“Today, bonds are not particularly attractive. We have
started to buy some
TIPS
, and it’s not because we
think
TIPS
have a much higher expected return than
traditional bonds, but because of the inflation pro-
Fund Manager Changes
Fund News
Aberdeen Select International Equity BJBIX and
Aberdeen Select International Equity II JETAX
Impact: Neutral 05-31-13
The former Artio funds joined the Aberdeen lineup and are now run by the team in charge of 4-star Aber-
deen International Equity
GIGAX
.
|
Our Take: These funds have new managers and a new strategy,
so their past records really have no meaning. Past management had been successful until 2008 but had
suffered a slump since then that led to huge outflows and staff cuts. Now the fund is in the hands
of the much more successful and stable Aberdeen team. So this isn’t the fund you bought, but the change
may prove to be for the best given the state of decline at Artio.
Columbia Acorn Select ACTWX
Impact: Neutral 05-01-13
Comanager Ben Andrews is stepping back to work as an analyst serving this fund. Rob Chalupnik, who has
been a comanager since 2011, is now the lead manager. Andrews’ 25% share of the fund will go to the
analysts serving the fund. All told, the analysts now run 80% of the fund.
|
Our Take: The fund has been a
mediocre performer under Andrews, and it sounds like he felt he wasn’t serving the fund well as manager.
So on the one hand, it’s good news that he’s finding a better fit. On the other, we have a lead manager
with a short tenure, and the analysts responsible for the unimpressive record remain in charge of most of
the assets. We are maintaining our Neutral rating.
Mairs & Power Growth MPGFX
Impact: Negative 12-31-14
Bill Frels will retire at the end of 2014. Mark Henneman, who will replace Frels, has been a comanager since
2006. Henneman became lead manager in July 2013.
|
Our Take: Henneman has long had a hand in the
fund’s management. In addition, the firm has an experienced staff that is steeped in the strategy. Thus, we
are maintaining our Silver rating (see Page 6 for more).
Matthews Asia Dividend MAPIX
Impact: Negative 10-31-13
Jesper Madsen stepped back from being lead manager and will leave the firm in October. Yu Zhang
and Robert Horrocks have taken over.
|
Our Take: Madsen’s departure is a loss. However, Horrocks is a
seasoned investor with a strong record. We are maintaining our Silver rating on this fund, whereas
we’ve lowered the rating on Matthews China Dividend because Zhang is the only manager scheduled to
be on the fund after Madsen retires.
Matthews China Dividend MCDFX
Impact: Negative 10-31-13
Jesper Madsen moved from lead manager to comanager in April, and he will retire in October. Yu Zhang
was comanager for a year before becoming lead manager in April. Matthews said it will decide in
the coming months whether it will add a comanager to the fund when Madsen departs.
|
Our Take: Zhang
served as an analyst at Matthews starting in 2007 until he became a manager. In addition, he has
served as comanager for two years at Matthews Asia Dividend MAPIX. We lowered the fund’s rating to
Neutral from Bronze because of Zhang’s limited experience as a lead manager, the key role Madsen
has played, and the uncertainty surrounding the comanager position. Because it’s a collaborative effort at
Matthews, we expect that the strategy will not change significantly.
T. Rowe Price Media & Telecommunications PRMTX
Impact: Negative 10-01-13
Dan Martino will transition off this fund at the end of September. Analyst Paul Greene has been promoted
to comanager until he takes over on Oct. 1.
|
Our Take: We hate to see Martino go but recognize that
the fund has weathered past departures well thanks to the depth of the analyst team. Greene has been
an analyst at T. Rowe since 2006. We’ve lowered our rating to Bronze from Silver. While we think the
fund is likely to continue to outperform, it is not a destination but a stepping stone for new portfolio man-
agers toward a diversified growth fund.
