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The Worldly Goods
Delaware International Value Equity Fund
Interview with: Emma Lewis

Author: Alexander Vantchev
Last Update: , :

For complete profile and charts on Delaware International Value Equity Fund
Not all the stocks and all the markets in the world are created equal, yet they get the equal treatment at Delaware International’s value shop in London. Rigidly following a time-proven investment discipline, Emma Lewis and her International Value Equity teammates dissect the world’s businesses looking for solid cash flows sold on the cheap side.

Delaware International Value Equity Fund

I have made my clients a good return.
The other reason to sell is if there is a significant change in the fundamentals that are assessed when calculating the present-day value. Let’s take the airlines, for example. When SARS came out at the beginning of February this year, obviously no analyst had factored in an epidemic in their assumptions of the value of that company. But as soon as that happens, what you do is you go through your assessment and you make changes on the revenue level, and the profit and loss, and you see what happens to earnings, what happens to the cash flow, what is likely to happen to the dividend stream during this period going forward. Then, your theoretical stock that was worth $10 yesterday may now be worth $5. If that is the case, and that stock is actually priced at $7.50, certainly it has gone from being very attractive to being very unattractive. So, you would sell.

Another example would be the Asian crisis back in 1997 and 1998. Then you saw currencies depreciating very fast and some Asian companies had U.S.-denominated debt. The value of their debt was increasing as their currencies depreciated. Consequently, we had to make changes to our assumptions and yes, in some cases you had to say that a stock wasn’t worth what it used to be and you had to sell. No one gets it right every time, but this strict discipline forces us to face up to mistakes quickly.

The third reason to sell it would be a more attractive alternative. Let’s say we hold three stocks in Singapore at about the right level, and I don’t want to hold any more. But suddenly a fourth stock halved overnight. I know that stock, I know the management, and I know that stock should not have halved. Maybe it should have come down by 10% or 20%, but I certainly see it as a fantastic opportunity. So, I do the work on that stock and if I believe that it actually offers more value than one of my other stocks, I’d sell the other stock and buy that one instead.

Q: What is the breakdown of the markets in your portfolio?

A: We have a strong overweight position in Asia, but we are actually underweight in Japan, which is to some people a bit surprising. We do not think Japan offers that much value, compared to many other markets within our universe.

We think Australia offers a very good value and we are overweight in that market. Not many people know that Australia had a productivity miracle during the 1990s. People talked about the productivity miracle in the U.S., but actually, Australia’s productivity improved much more than even the U.S.’s. In Australia we hold financials, consumer stocks, and other areas, such as telecom. We have an overweight position in Hong Kong as well, because we think there are some good stocks there that offer excellent value.

Equally, we have found excellent value in Singapore and we have a couple of holdings there – a conglomerate and a bank. There is a fair amount of restructuring going on in Singapore with increased emphasis on shareholder value. Singapore is one of those countries where the infrastructure really works well. It is seamless, it is smooth, and it works. That really helps – it has a strong service culture and very stable politics. At the same time it has a huge exposure to global trade. So, every time global trade picks up, Singapore should benefit.

Q: What would you tell a potential investor in your fund in terms of what they can expect and what they should not expect?

A: Our intention is that this always be a value fund using the dividend discount model. As a result of that, I hope the key history-proven benefits will continue – the real rate of return, the strong downside protection with the very strong defensive characteristics, the very low volatility compared to the benchmark index and also to other international managers.
In terms of performance, I can’t promise anything for the future, but in the past, we have beaten Lipper’s benchmark year-to-date, and over the one year, three-year, five-year, and ten-year periods. Investors usually expect consistency and that is what we are aiming for.

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