There is an argument for global funds: they allow fund managers to pick stocks from anywhere and investors can widely diversify their portfolios.
We recently sat down with one of those fund managers: Brent Fredberg of Brandes Global Equity. (BGEAX) . The fund has $46 million in assets and Brandes Investment Partners has $24 billion in total.
TheStreet/Brandes Investment Partners
Performance of the Brandes Global Equity Fund
Brandes Global Equity Fund generated annualized total returns of 12% over the 12 months through Jan. 31, 11% over the past three years, 9% over the past five years and 6% over the past 10 years, according to Morningstar .
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Those numbers beat the Morningstar Global Value Index in every period except the 10-year period.
The fund is a large cap type. In recent years, value stocks have underperformed growth stocks, making value an attractive option, Fredberg says. And low valuations overseas compared to U.S. stocks make foreign stocks attractive.
Here are his thoughts on those topics and more, including several stock picks.
TheStreet.com: What is your investment philosophy?
Fredberg: We are fundamental value investors with a contrarian bias. We don't define value simply as low multiples. We take growth, quality and moats into account when establishing a company's intrinsic value.
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We are able to put together a portfolio of well-positioned businesses that are significantly cheaper than the broader market.
Discounts often arise because a company is suffering from something, and we look at whether the problem is short-term and fixable or long-term and secular.
The market is very focused on what it can see in the short term. But when you invest in companies over a period of several years, what appears to be influential today may no longer make headlines in three to five years.
TheStreet.com: What is the appeal of large-cap global value stocks?
Fredberg: Value stocks are extremely cheap compared to growth stocks. Global value stocks are cheaper relative to growth stocks than they have been in several decades, aside from the Nifty Fifty period of the late 1960s and early 1970s and the tech bubble of the late 1990s.
Historically, when value stocks have become so cheap relative to growth stocks and relative to the market, there has been strong outperformance for value stocks over the next five or more years.
Additionally, while we are finding individual opportunities in the US, foreign markets are significantly cheaper than normal compared to the US.
A common pullback is that international markets have less weight on tech stocks, which is true. But they are significantly cheaper than normal, even adjusting for that. And international revenues are more depressed.
Global value stocks also provide diversification to the highly concentrated US market and its Magnificent Seven (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla).
TheStreet.com: Are there particular industries or themes in the markets that you like?
Fredberg: In 2022, we bought technology companies when technology was out of favor. At that time, we also cut some of our healthcare positions as they were performing well.
More recently, we've been doing a bit of the opposite. We believe that technology is quite valued as a sector. However, the sector is bifurcated. We can still find ways to participate in the topic of artificial intelligence through low-profile companies that are considerably cheaper.
We also like healthcare. We see it as a defensive sector that still offers quite a few names at attractive valuations. These are not just pharmaceutical companies, but also healthcare services and medical equipment companies.
TheStreet.com: Is there any geography that you particularly like?
Fredberg: Emerging markets look more attractive. China went from being very loved five years ago to being very avoided today. We think the sentiment was too extreme in both cases.
China is influencing many other emerging markets today, suppressing valuations. But it is very important to be selective.
We like South Korea. They have seen the success Japan has had by focusing on improving the profitability of lagging companies, optimizing balance sheets and focusing more on shareholder returns.
South Korea seeks to emulate some of that and eliminate the so-called Korean Discount that has existed for years. We'll see how serious they are, but we own several companies that could benefit.
In Europe there are a number of well-positioned multinational companies that happen to be domiciled in Europe but generate their revenues around the world. And they trade at significant discounts to their US-based peers.
TheStreet.com: Can you tell us about three of your favorite stocks??
Fredberg:
1. Sanofi (CUT) , the large French pharmaceutical company that does business all over the world. It has one of the lowest patent risks among major pharmaceutical companies, and it doesn't have a big expiration until 2030.
It is led by the immune drug Dupixent. Sanofi is also very strong in vaccines, which are cash flow generators. In addition, it has a drug against multiple sclerosis in trials that could contribute to growth.
And it plans to spin off or sell its consumer business later this year. That includes Allegra and Aspercreme.
2.FedEx (FDX) . As you know, it is one of the two leading package delivery companies, along with UPS. (UPS) . The oligopolistic nature of the industry should allow for price fixing.
FedEx has been operating inefficiently relative to UPS, with operating margins significantly lower than UPS. In 2022, FedEx named a new CEO, who has been cutting costs, focusing on free cash flow and emphasizing a “better, not more” approach to improving margins.
FedEx will integrate its ground and express businesses, which could materially improve efficiency and profitability.
3. Taiwan Semiconductors (SST) , the world's largest semiconductor foundry. It makes all of Nvidia's cutting-edge ai chips, as well as most of the chips that power the cloud.
The company saw a 5% revenue decline last year, the first decline in more than a decade. More than half of its business comes from smartphones and personal computers, which saw a lull last year.
However, both markets appear to be improving. And in the coming years ai will move to smartphones and PCs, increasing the need for semiconductor content.
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