For instance, one of the MFS fund's holdings is Jardine Lloyd Thompson-a risk management advisor, an insurance and reinsurance broker and a provider of employee benefit administration services. Jardine is positioned to benefit because it's paying its costs in U.K. currency while selling its products and services in stronger U.S. dollars. It has offices in 120 countries and employs more than 5,000 people around the world, and it has a market capitalization of slightly over $1 billion and a dividend yield of about 4%.
Where The Values Are
Like the other 100 or so stocks in the multi-cap MFS portfolio, Jardine is undervalued, with low price-to-cash flow, price-to-sales, price-to-book and price-to-earnings ratios. The fund's value screens have led it to emphasize countries with established markets, not to mention value-oriented businesses. At the end of January, the latest data available, the fund had 24% of its assets in Japan, 15% in the U.K., 12% in Switzerland and 9% in France. Its dominant business sectors include financial services at 18% of assets, utilities and communications at 12%, consumer staples at 11% and energy at 10%.
While the fund has a substantial portion of its assets in the financial services sector, Wiener has set its allocation for these to less than half that of its benchmark, the MSCI EAFE Value Index, because of this sector's risky profile. "Half the losses in subprime mortgages have been booked by financial institutions outside the U.S.," he says. "Like their American counterparts, many of these banks overextended credit and had lax underwriting standards."
To minimize credit issues, he focuses mainly on financial institutions with strong balance sheets and conservative lending and investment practices. Fund holding Munich Re reinsures the risks connected with oil rigs, satellites and natural catastrophes and the management of companies. Although the firm has felt some of the impact of the financial crisis, Wiener says it is more stable and well-capitalized than its competitors. He also owns a number of Japanese regional banks, which have higher capital ratios and more conservative lending standards than their U.S. and European counterparts.
A less successful holding in the financial sector has been bailout recipient Royal Bank of Scotland, whose stock sank from a high of $156 in March 2008 to less than $3 a share in January of this year. "One of the reasons I bought the stock was because it was so cheap," says Wiener. "But in this market, cheap stocks that are high risk can easily get cheaper."
He believes that valuations among utilities are unattractive now because so many investors have flocked to them as a safety play and he has cut back on his energy positions because the drop in oil prices could affect profitability.
On the other hand, attractive valuations, solid dividends and recurring business revenues have made telecommunications companies such as the U.K.-based Vodafone Group a good buy. Vodafone, a leading mobile telecommunications company with a significant presence in Europe, the Middle East and Africa, in the Asia-Pacific region and in the United States, recently announced it has signed deals with several record companies to offer their tracks and albums for both mobile phones and PCs.
In consumer staples, another traditionally defensive sector, Wiener likes well-known brand names such as Nestle, the largest food and beverage firm in the world. The company, home to 25 well-known brand names such as Purina and Nescafe, is expanding its nutritional food offerings and making inroads into emerging markets. Another consumer staples holding, Heineken, owns and manages one of the world's leading portfolios of beer brands. In addition to the brands Heineken and Amstel, it also brews and sells more than 170 international specialty beers and ciders.
Swiss drugmaker Roche Holding, one of the fund's top positions, reached an agreement in mid-March to acquire biotechnology company Genentech for $95.00 per share in cash, for a total payment of approximately $46.8 billion. The combined companies will forge the seventh-largest U.S. pharmaceuticals concern in terms of market share. This follows Merck's acquisition of Schering-Plough and Pfizer's agreement to buy Wyeth. Wiener thinks that health-care merger activity will remain strong as cheap share prices attract companies looking to expand their geographic reach and product lines.
