Charles de Vaulx on International Investing

The Manual of Ideas has detailed notes from a presentation given by Charles de Vaulx of International Value Advisers LLC at the Value Investing Congress earlier this week in Pasadena.

Charles is bullish on Swiss food giant Nestle and Secom, a Japanese company that specializes in home security systems. He also likes gold, high-yield bonds, and is short US Treasury bonds. Only 7% of his global portfolio is invested in US stocks.

He also has some interesting general thoughts on how to think about international investing:

International Investing

* Diversification argument [for international investing] is getting weaker—especially in a more global world.
* The real attraction is that foreign markets remain less efficient than US markets.
* At the margin, he believes accounting is more reliable outside the US (the real issue is poor disclosure (no 10-k’s, divisional breakdowns, etc).
* Corporate governance outside the US needs to improve—there have been some improvements in the field of takeovers (French have improved quite a bit).
* Small foreign stocks are not as risky as they appear—many are family controlled businesses. Family controlled businesses can be better run (less leverage, more willing to bring in outside managers) than non-family owned businesses.
* Another argument people make against international investing is that you are exposed to fluctuations in currencies. Even though domestic investors have exposure to currency risk, his firm mitigates currency risk through hedging policies, pays attention to the types of companies he owns (i.e. export company in Japan might not need to be hedged—already has its own natural hedge).
* Currently has cash level of 23%, 7% US, 34% high yield bonds, 8% gold, Europe 12%, Asia 15%, >1% Energy.
* Believes on average that European stocks are 15% cheaper than U.S. stocks.