How managers scan the international horizon for stock bargains
Boston — Almost half of the market. That's how much investment is being passed up by people who only purchase stocks of American companies on US stock exchanges. But ever so slowly, investment managers and advisers are turning more of their customers on to opportunities in Europe, the Pacific Basin, and Australia. In recent years, managers of mutual funds have been the most persistent proponents of international investing.
''The US stock market now comprises 56 percent of world market capitalization ,'' notes John A. Hockin, portfolio manager of the Keystone International Fund. ''So people who are only investing here are ignoring 46 percent of the world's capital. Some of these (foreign) markets have highly sophisticated, well-managed companies. By only investing in the US, people are ignoring companies and countries around the world.''
''Two years ago, we were a $30 or $40 million fund,'' notes John Ford, portfolio manager at Rowe Price Fleming, the international fund offered by T. Rowe Price of Baltimore. ''Now we're a $100 million fund. That's still pretty small, but our growth has been quite strong.'' While Mr. Ford admits investors ''tend to look at home first,'' they are becoming ''more sophisticated recently.''
''In the past couple of years, there has been more and more interest in international markets,'' said Charles Fiumefreddo, executive vice-president of Dean Witter Reynolds Inc. He is also head of the InterCapital division at this Sears, Roebuck unit. Late last month, Dean Witter announced the formation of a new mutual fund that will buy stocks of companies in the United States and abroad. Actual investing by the fund won't start until Oct. 31, when money from the first customers is counted.
Based on early response, however, there should be plenty of money. ''We've gotten an overwhelmingly enthusiastic response from our sales force and their clients,'' Mr. Fiumefreddo says.
While gains in some of these funds have been in the respectable-but-not-spectacular 40 to 60 percent range, they do appeal to bargain hunters, investors who are looking for the best stocks in an otherwise bearish market. Up until a year or so ago, the best place for that was the United States.
One of the major differences among international mutual funds, in fact, is whether they invest in North America. At some funds, North America does not exist; at others, the portfolio managers can invest as much as they like on this continent, although most follow self-imposed limitations.
''Right now, we have about 60 percent of the portfolio in the US,'' notes Ann-Margaret Ulrich, director of institutional marketing at the Templeton Funds. ''It's always been our style to buy bargains wherever they were in the world.'' And, until recently, the bargains were in the United States. But with the US market continuing the climb it began over a year ago, there aren't as many bargains around and the portfolio mix at Templeton will change. ''The more the US market goes up, the more that (60 percent share) will slip,'' Ms. Ulrich says.
The company does have one fund - the Templeton Foreign Fund - that does not invest in North America.
A similar policy of including North America when there are good investments here will be followed at the Dean Witter fund, Mr. Fiumefreddo said. In an unusual move, investment decisions will be made by a three-way panel representing three parts of the world: Daiwa International Capital Management Corporation for the Pacific Basin; CB International Investments Ltd., a member of the Westminster Bank Group in London, for Europe; and Dean Witter, handling North America, which will also break any stalemates that might arise among the three management firms.
For the Dean Witter troika or any other fund manager to find good investments in so many places does require some homework. Most of the firms, though, tend to stick to Western (but not Southern) Europe, Japan, South Korea, Taiwan, Malaysia , Singapore, Australia, and New Zealand, in addition to any investing they may do in the US and Canada. At some companies, investments are also made in South Africa.
It can be difficult to find bargains among all the companies around the world , the portfolio managers acknowledge. ''There's a huge volume in Japan, for instance,'' Mr. Hockin at Keystone notes. ''But everyone is going for the big companies, like Hitachi, Toshiba, Casio, and Sharp. We have to look for the bargains. You have to know your market.''
In Europe, most funds tend to favor electronics, aerospace, pharmaceutical, and specialized consumer companies.
''The European market has been driven up by higher-quality stocks,'' Mr. Ford at Rowe Price Fleming says. ''Also, as in the US, consumer stocks have done well.''
European stocks favored by fund managers include Philips, the electronics giant, and Royal Dutch Petroleum in the Netherlands; L.M. Ericsson, a Swedish telecommunications firm; Novo Industry, a Danish pharmaceutical and biochemical company; Nestle of Switzerland; Britoil, a British oil and gas exploration company that is active in the North Sea; Daimler-Benz, the West German automaker; and BASF, the large German chemicals and plastics manufacturer.
While international fund portfolio managers urge investors to look beyond the United States, they are forced to look back to the US for signs that will help their investments grow.
''This time the recovery should take hold, but slowly,'' Mr. Hockin maintains. ''And 1984 should be good - subject to what happens in the US. . . . Interest rates will come down, assuming the US dollar doesn't stay too high. The dollar has been so strong that international stocks, in dollar terms, have been cheap.
''All economic logic suggests that the dollar is overvalued,'' he continued. As long as real interest rates in the US stay high, he suggests, much of the capital needed for foreign companies will continue to flow into this country.