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15
Morningstar FundInvestor
April
2015
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
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
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.
Kinnel:
How are you looking at energy, and can you
mention one of the names that you found attractive?
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.
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