Robert C. Sharpe: Over the last 20 years, the U.S. market and international have traded off who has performed the best. And it’s been at least 5 years of outperformance by one market or the other.
Michael Jolin, CFA: If you take a look at the chart, it shows the U.S. has significantly outperformed the rest of the globe over the last 6 years, and even over the last 20 years.
U.S. Market Has Outperformed
Source: Bloomberg L.P., Russell®, and Heartland Advisors, Inc., 7/31/1996 to 1/31/2017. Past performance does not guarantee future results.
Sharpe: I think over the next 5 years that is likely to close in favor of international markets.
Here at Heartland we employ the 10 Principles of Value Investing™. We can find stocks that are ranking 8 of 10, 9 out of 10.
Jolin: Right now it feels like we’re fishing in a stocked pond.
If you think about it, crisis is opportunity.
And if you take a look at our positioning in the U.K., a couple of years ago we really didn’t own anything in the U.K., as the stocks from a bottom-up perspective looked expensive.
Crisis Creates Opportunity
Source: FactSet Research Systems Inc. and Russell®, 12/31/2014 to 12/31/2016
International Value Fund reflects percentage of equity investments. Foreign country classifications are generally determined by referencing country of domicile sourced from FactSet Research Systems Inc. Portfolio allocations are subject to change without notice.
Sharpe: Generally they were trading way above 2x price to book.
Obviously, with the Brexit, the market has come in.
And the other thing that’s happened is when a company has disappointed the market, it’s been hurt the usual percentage of its shortfall. But it’s gotten additionally hammered. And I think that’s due to the uncertainty around Brexit.
Jolin: In Brazil, we’re realizing a big tailwind there from a macro perspective, with interest rates and inflation both coming down at the same time. This is going to help stabilize the currency and provide a macro tailwind for a number of our holdings as well as, from a micro perspective, from a bottoms-up valuation, these stocks are trading at incredible values and paying really nice dividends.
Sharpe: Nirvana for me is if you can find a company that’s trading at the bottom of its cycle, its earnings are depressed, sentiment towards it is terrible, and the valuation on those low earnings is low. So that if you’ve done your homework and there’s nothing wrong with that company and the industry is still fine, you can win many ways. You pick the right stock, you know, boom—it takes off.