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With a Weak Dollar in a Big World
Vontobel International Equity Fund
Interview with: Rajiv Jain

Author: Dave Jennings
Last Update: , :
Rajiv Jain believes that international investing is still about buying companies and not countries. He told Ticker his story how making money or losing money is not determined by one's 'view of the world as such.'

Vontobel International Equity Fund

A: Ultimately you buy the company; you don't per se buy the country. If the business is functioning poorly or if they're making bridges from here to nowhere, like they're doing in Japan to the village of the local senator, it does nothing for the profitability of the company.

Q: In viewing the MSCI EAFE index weightings compared to your fund, I see you are zero in certain industrial sectors.

A: Yes.

Q: That is telling me that aren't paying attention to what Morgan Stanley says you should own.

A: That's right. It's a big profit center for Morgan Stanley. Let’s not forget that. They change the index list. You have to see the list going in and out every month. They make money out of it. We don’t want to mimic the index. We want to buy the better businesses at cheap prices. If it's not part of the index, then c'est la vie!

Q: Since you're static now in your positioning of the fund, what is your outlook?

A: Let’s look at the portfolio like a stock. That is the way I would like to look at it. What is the stock selling at?

Q: The stock is selling in terms of valuation a PE of 13.78, which is much lower than the S&P 500 of 20 times earnings. That is a historically low PE if you take the value approach.

A: In our case, these are real PE ratios. The reason is there are no restructuring stories. There are no turnaround plays.

Q: In America there have been a lot of restructuring stories.

A: All of Europe is a restructuring story. I think it always will be. No one should ever pay any heed to how and why Europe is going to change. There is too much legacy here that is very difficult to change. Pensions, deficits, etc. Demographically, these countries are aging. If you make a top-down case, it's very hard to justify buying anything there. You're not going to make or lose money purely based on how you look at the world as such.

Q: How do you look at the world as such?

A: The best way I believe is to find businesses which are doing well, which are making money and are cheap enough. You can make a lot of money just from buying those businesses. It could be in the worst places. The last 20 years, you would have made a lot more money there than in Germany. Twenty years, not two years. And Germany has been a better place in terms of per capita income over the last 20 to 30 years.

Q: What made Mexico better than Germany?

A: Because there are large companies there that have been growing. They’re cheap and a lot of them are still cheap today. They were focused on creating shareholder value. Not all of them, obviously, but there were enough. That's what took Mexico up. Companies are destroying shareholder's money in Germany. Going back to the Vontobel International Fund, its trading, as you saIdent, 13.7 times earnings - it's growing at a rate of double digits. I ran some numbers and in the last 12-month basis, the reported earnings grew at 10% in a recession. The return on equity is 20%. The dividend yield is 3% plus. It's not that we look for dividend yield, but most of the companies we own are mature. They don't need the cash. Half the companies we own are buying back stock because they can. If the portfolio can grow its earnings in a recession, it can do better in a non-recession. It doesn't mean you're going to make a lot of money, but the more the certainty you will be all right. We will outperform the index. I'd rather under perform in an up market than lose my shirt in a down market because you only have 100% to lose. It doesn't matter how much money you make. If you lose 90% it can take your lifetime, if ever, to recuperate that. If you grow at 20% for two years and then lose 50%, that's worse than saying, “I'm going to grow at 10% and then I'm going to lose 5%.” You're better off in the latter one. I think it is simple math, which kind of escapes other people.

Q: This ‘all or nothing approach’ leaves you with nothing.

A: On a global basis, there are enough things going wrong somewhere along the line that we should be able to find something. This is a big world. Not everything goes in sync.

Q: In conversations with multi-sector bond fund managers, they show how capital is mistreated around the world. How do you see capital flowing around the world?

A: It’s hard not to admit the fact that capital is going outside the U.S. Look at the way the dollar has reacted in the last 12 to 18 months. I think that this is going to continue. We just have too big a deficit to sustain a strong dollar.

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