Sorry about the delay on sharing some of the Day Two notes. A portion of this note also appears in the thread on "End of the EM Bull."
Day Two started with a 7:00 a.m. breakfast sponsored by Litman Gregory. The coffee was eye-opening - the sort of 10% total dissolved solids brew that any reasonable Midwesterner would consider a "coffee concentrate" - but the snacks were largely desultory. Litman runs the Masters series funds and bills itself as "a manager of managers." The presenters were two of the guys who subadvise for them, David Herro of Oakmark and Matt Eagan of Loomis Sayles.
Herro was asked about frothy markets and high valuations. He argues that "the #1 risk to protect against is the inability of companies to generate profits - macro-level events impact price but rarely impact long-term value. These macro-disturbances allow long-term investors to take advantage of the market's short-termism." The '08-early '09 events were "dismal but temporary."
Herro notes that he had 20% of his flagship in the emerging markets in the late 90s, then backed down to zero as those markets were hit by "a wave of indiscriminate inflows." He agrees that emerging markets will "be the propellant of global economic growth for the next 20 years" but, being a bright guy, warns that you still need to find "good businesses at good prices." He hasn't seen any in several years but, at this rate, "maybe in a year we'll be back in."
His current stance is that a stock needs to have 40-50% upside to get into his portfolio today and "some of the better quality e.m. firms are within 10-15% of getting in." He seemed impressed, in particular, with the quality of management teams in Latin America ("those guys are really experienced with handling adversity") but skeptical of the Chinese newbies ("they're still a little dodgy").
He also announced a bias "against reserve currencies." That is, he thinks you're better off buying earnings which are not denominated in dollars, Euros or yen. His co-presenter, Matt Eagan of Loomis Sayles, has the same bias. He's been short the yen but long the Nikkei.
In terms of asset allocation, he thinks that global stocks, especially blue chips "are pretty attractively priced" since values have been rising faster than prices have. Global equities, he says, "haven't come out of their funk." There's no much of a valuation difference between the US and the rest of the developed world (the US "is a little richer" but might deserve it), so he doesn't see overweighting one over the other.
For what it's worth,
David
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