Midyear Investment Review and Outlook : The Search for Growth : After a rough first half on Wall Street, where are the best profit opportunities in markets now? Here, four mutual fund managers explain their strategies. Interviews by Tom Petruno.
Andrew Williams
Fund: Glenmede International, Philadelphia
Category: International
First-half return: +4.5%
Avg. intl. fund return: -0.1%
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U.S. investors in foreign stock funds have learned to curse in many languages this year, as market after market has tumbled in the wake of 1993’s stellar gains.
To steer the Glenmede International fund to a positive first-half return of 4.5%, manager Andrew Williams used a big bet on Japanese stocks to offset weakness in most European markets. He also stayed mostly clear of Hong Kong, which has taken one of the hardest hits this year.
Williams sees the first half’s setbacks in world stocks as part of an unavoidable market transition. Instead of being driven by falling interest rates, which have fueled stocks’ gains since 1991, global markets will now be driven by corporate earnings, he says.
“I’m trying to focus on the next stage of the cycle, which is earnings growth,” he says. For that reason, Williams says, he shifted substantial assets into depressed Japanese stocks early this year, in time to catch the market surge there. Japanese issues now constitute 30% of the fund’s $260 million in assets.
Although he concedes that he’s worried about the effects of the strengthening yen, “the earnings outlook in Japan is really very good,” Williams says, as that country emerges from its long economic slump and demand for its exports rises worldwide.
He’s also playing an expected domestic demand rebound in Japan. One of his favorite issues is Nippon Denso, a major auto parts supplier to Toyota. “There’s a whole auto-replacement cycle in Japan that’s going to be kicking in over the next few years,” he says.
Fully 50% of the Glenmede fund’s portfolio is in European stocks, another bet on a business recovery. Williams’ European holdings are skewed toward cheaper-priced stocks in countries such as Spain and Italy (he owns clothing giant Benetton, for example), and toward major oil companies such as Royal Dutch Petroleum and British Petroleum.
The oils in particular reflect his search for businesses that have “exposure to a better pricing situation” as the economy picks up, Williams says: “The stocks are relatively cheap, the balance sheets are good, and the commodity’s price is going up.”
Finally, Williams is taking a go-slow approach with emerging markets, given the painful learning curve many new investors have ridden there this year. He prefers to view developing-world stocks as spice for the portfolio. He has small stock stakes in Singapore, Malaysia and Mexico. But Hong Kong still worries him, even after its 26% dive this year. It’s a good bet that China will clamp down further on its own growth to control inflation, he says, and “any slowdown in growth in China naturally will hurt Hong Kong.”
