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It's Free World Cash
Polaris Global Value Fund
Interview with: Bernie Horn

Author: Alexander Vantchev
Last Update: , :
As the world goes to Boston for funds, a Boston fund manager checks the world out for value. Bernard R. Horn, Jr., manager of Polaris Global Value Fund (PGVFX), told Ticker how the road to low-risk high returns is paved with the world's undervalued free cash flows.

Polaris Global Value Fund

Q: Now, the talk about banks, and Banknorth very much included, is about the net interest margin pressure. How real is that, if you're still comfortable with it?

A: It is very real. So that's the real question going forward, and there are really two questions will the economy stay very weak and if it gets worse, ultimately that has to translate into more defaults on loans, and secondly, if the economy stays weak and rates go lower that could make the interest margins decline. But having said all that, we think there are worse risks to be taking in the equity markets right now than these banks. And of course you've got the money supply. The Fed is doing everything in its power to pump liquidity into the system. And not only the U.S. Fed is doing it, but almost every central bank in the world is pumping liquidity into the system at a massive rate. And ultimately that will probably generate some inflation, if it is not totally deflated away by this issue with deflation we were talking about earlier. So, it's kind of a push and pull right now in the global monetary system. Ultimately, we think it'll be solved. And banks do not depend only on their net interest margin, they have also other fees and charges, and investment products, and insurance, and that's growing.

It's funny because a lot of these banks are generating a decent 5% to 10% earnings growth, which in this economy looks absolutely fantastic. Five years ago if you came up with a 5% or 10% earnings growth rate, everybody would short your stock and send it into the cellar. So, we think sometimes flowing steady is just fine.

Q: So, what is your worst fear, then? What are the most significant problems globally, and what would you definitely hate to see in 2003 and 2004?

A: Well, we still believe that this collision course between the Eastern and the Western capitalism is the biggest problem for investors. Not only for the next 12 to 24 months, but for the next three to five years, or maybe the next decade. Because if we really get into this nasty, competitive, down and dirty, economic competition, there is not going to be a lot of money left over for shareholders. It's the free cash flow to shareholders that ultimately drives stock prices. So, that's the one thing that we worry most about, but it's also the one thing that we think is the most important reason to consider a global fund, because it allows the portfolio manager to find some place in the world where things are going well.

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