How About Opportunities Outside Of The United States?

Davis: Europe continues towards recovery. They are following our road map, but they’re way behind. They’re moving slowly, and dealing with issues like demographics, the regulatory environment and lack of cohesiveness. However, Europe has a global orientation, and that is present in a lot of their best businesses. There is always an advantage for corporations with a global orientation.

When we look for opportunities given that context, we look for premier multinational leaders with strong global growth prospects and avoid companies that have tepid growth tied solely to Europe. We look for companies that are tarred with the European name or negativity, but actually have economic fortunes that are more differentiated.

In the developing markets, we see a lot of opportunities, due in part to strong earnings growth, powerful emerging middle classes and attractive valuations. Of course, one has to be aware of various currency, political, economic and regulatory risks, which are idiosyncratic. These risks vary dramatically country by country, which, of course, raises the same thing on the opportunity side, which is that selectivity is going to be critical—not just in the individual companies, but also in the individual countries.

In select developing markets, we see opportunity in rapidly growing, attractively priced consumer service companies. Investors want to be where the middle class is erupting. You don’t want to be in the big state-owned and formerly state­-owned enterprises. We also like industry­-dominating businesses, and are looking primarily in China, India and Brazil.

What Are Your Thoughts On The Current U.S.- China Trade Dispute?

Davis: I think this is a great example of the headlines distorting the reality. Trade disputes are always bad, because once you introduce tariffs, you introduce friction—which basically means money is taken from businesses and consumers and transferred over to the government.

So we start with the fact that there are negatives. However, history is not written in terms of how this will play out long term. Is this a short­-term tactic? Is it a long­-term war?

When you go through country by country and look at historical data, it is amazing how perspectives can get distorted.

Only 10 years ago, net exports from China were 9 percent of its GDP. Today, they are 2 percent. In a sense, our perceptions of what is happening in the world or the way China works are outdated. China has transitioned from an export­-led economy to a much more U.S. model of a consumer­-led economy.