By Mina Kimes, writer
MFS International Value Fund manager Barnaby Wiener
FORTUNE -- Markets across the globe are in a state of tumult, but Barnaby Wiener, who runs the $5.8 billion MFS International Value Fund (MINIX), isn't breaking a sweat. Wiener (pronounced wee-ner) is a long-term investor who picks stocks on an individual basis, and he thinks the companies in his portfolio will outlast the turmoil. A former British army captain, Wiener seeks companies with sustainable business models and cheap valuations. But he isn't a slave to the price/earnings ratio. "You can make a company look cheap with one metric, where with another it's very expensive," he says. Wiener's fund has thrived, returning an average of 9.9% a year since 2002, better than 99% of its peers. The key? Risk aversion. "It's much more important to avoid losing money than it is to make money," he argues. "If you avoid the big losses, you make money almost by default." Edited excerpts:
Two-thirds of your fund is invested in European companies. Does that mean you're bullish on the continent?
We're not remotely confident in the outlook for Europe as a whole, nor are we particularly confident in the outlook for anywhere else in the world. Our approach is to own businesses that can endure a difficult environment, partly because those are the best to own over the long term.
The most important thing is not where a company is domiciled, but where it operates. Two of the biggest positions in the fund -- Heineken (HINKF) and Danone (DANOY) -- are European companies. But in both cases, they actually do something like 40% to 50% of their business in emerging markets. They're not European companies; they're global multinationals that happen to be based in Europe. The difference between owning a European food business and a European bank is enormous.
Is that why you're a fan of consumer-staples stocks?
The consumer-staples sector is replete with solid, durable businesses. The valuations are okay -- they're not supercheap. They're trading at earnings multiples in the mid-teens. But considering the quality of those businesses, which have unleveraged balance sheets, that's a pretty reasonable valuation. With Danone, the compelling thing is that they have a focused portfolio. They make three things: fresh dairy, mineral water, and nutrition products. These are good categories in terms of high growth, particularly nutrition, which grows at 10% annually. And it's a company that's very much managed for the long term. They've consistently invested in their business rather than trying to exploit near-term profitability.
We also own shares of British American Tobacco (BTI). It mostly operates in the U.S., but it's active across the world, with a decent skew toward emerging markets. Cigarette volumes don't grow much. But you get consistent price increases, and as a result, revenues for the company have typically grown in a mid-single-digit range. It generates tons of cash flow, and the bulk comes back to shareholders. Its dividend yield is over 4%.
Tech stocks aren't typically considered safe. Why do you own so many?
Historically you could argue that technology is not a place where you find sustainable business models because technology is characterized by rapid change. However, I would argue that it's actually a very diversified sector with a lot of different business models.
Taiwan Semiconductor Manufacturing (TSM) is the dominant player in the global foundry industry. Foundries manufacture on behalf of others. The share of semiconductor production done at foundries is going up, and no one can compete with Taiwan Semiconductor. Their annual capital expenditure budget is about $6 billion or $7 billion; a lot of companies can't afford to do that. It's the kind of business where scale is a genuine advantage. From a competitive standpoint, the industry is becoming more concentrated, and the weaker players are starting to fall away. Taiwan Semiconductor is trading at 16 times earnings and has a dividend yield near 4%. It's not as cheap as it was, but it's still a reasonable valuation for a very strong franchise and long-term winner.
Japan can't seem to grow, but you like some companies there.
Basically we've come across a lot of good businesses with strong balance sheets trading at attractive valuations. KDDI (KDDIY) is our largest position. It's one of the three Japanese mobile operators. It's very, very cheap; it trades at seven or eight times earnings. It's highly likely that KDDI's earnings and cash flow will improve over the next two or three years, as opposed to what the market's expecting, which is a decline.
The previous-generation network in Japan was unique to Japan, so your Nokias (NOK) and Samsungs couldn't supply the Japanese market with cheap phones. Now their 3G networks can utilize global smartphones. As these phones really kick off in Japan, they'll have positive impact on KDDI's top and bottom line.
Why don't you own any emerging-markets stocks?
We don't need to invest directly in emerging markets, because the companies we own are doing that for us. They've been building businesses there for decades. I'd rather get exposure via a well-established company with a strong brand that understands that market than by speculating on which companies will be winners.
This story is from the September 24, 2012 issue of Fortune.
16 Sep, 2012
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Source:
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