The UMB Scout Worldwide Fund has an international approach to investing. The fund trades under the ticker UMBWX, has assets of $445 million--up over 10 percent for the year; the fund celebrating its tenth anniversary this month. So, why are international equities so important? [See the Fund's latest performance]
Joining us from New York, James Moffett, portfolio manager UMB Scout Worldwide Fund. He manages--has managed the fund since its inception in 1993.
Good morning, sir, thanks for being with us.
Mr. JAMES MOFFETT (UMB Scout Fund): Howdy, Mark. Happy to be here.
HAINES: Why should I have international stocks in my portfolio?
Mr. MOFFETT: Well, there's two basic reasons. One is the usual diversification argument that it helps to balance the risks and rewards of the American portfolio. The other is that the foreign stocks have--there are a lot of good companies out there that're selling at attractive values. The economies around the world are starting to turn up. The end--the US is the engine that leads the train, but there are a lot of other cars on the train--Germany is probably the caboose, but....
HAINES: All right. Where--how do you approach picking international stocks? Do you do it--do you favor a country, then look within that country, or is it a more eclectic approach?
Mr. MOFFETT: Well, it's--it's--eclectic is probably the best word for it; but we start with the country-which countries we want to be in. We're primarily in the established, stable countries--the political risk is one of the factors that we're very conscious of. And then we go and look for the stocks--the companies that are doing well within that environment and a lot of them are doing well not just there but around the world.
Dr. EUGENE FLOOD (CEO, Smith Breeden Associates): James, a lot of investors when they think about international investing think about the currency impact on their returns, as one of the key drivers. But do you take currency into--how much do you take currency into account when you're thinking about whether to invest in the UK vs. Japan, et cetera?
Mr. MOFFETT: We think about it but it isn't a prime driver. At a matter of policy we don't do any hedging on currencies. In the last year or so, with the--the dollar down and the euro up, that's an real plus for us and we've got 65 percent or so in Western Europe so that's really helped us. But it's a mixed bag because a lot of those same companies--there was a news report this morning out of Nokia that their earnings were hurt because of a weak dollar. So it's a two-edged sword in many cases. So we don't--that isn't the prime driver but in this year, it's helped us.
(Graphic on screen)
INTERNATIONAL PICKS*
James Moffett, UMB Scout Worldwide Fund
- Pioneer (Japanese consumer elec.)
- Samsung (Korean electronics)
- Magna (Canadian auto parts)
- Ambev (Brazilian beer)
- Smith & Nephew (UK artificial hips & knees)
Dr. FLOOD: Another question for you. I notice in one of your recent reports that you're--you have a large underweight in the UK and then also in Japan, and you seem to like Canada a lot. Could you talk about that a little bit? [WorldWide Fund Fact Sheet]
Mr. MOFFETT: Well, that's the maj--major deviation in our portfolio from the benchmark--the EFA that we use--is the overweight in Canada and in Latin America, too. We've got a fairly good position in Brazil and that money has to come from somewhere. We took it primarily out of the UK and out of Japan. We've been skeptical about Japan, particularly because of their rotten banking system and the political problems of getting their economy going. We feel a little better about Japan now. We haven't raised our weight, but we have raised the aggressiveness of the actual stocks that we own, looking for the exporters and the more cyclical companies and having sold some of the traditional staple companies.
HAINES: What do you like up in Canada? I think, for most Americans when they think of investing in non US stocks, most of them I think would feel fairly comfortable investing in Canadian stocks.
Mr. MOFFETT: We like several stocks there. In particular, the energy exposure, we've got in Canada and Imperial Oil;* we also like Magna,* which is an auto parts company--
HAINES: Yeah.
Mr. MOFFETT: It's--it's in many ways seems to us the best way to play the auto business. The big manufacturers are beating each others' brains out but Magna keeps making money, making parts.
HAINES: All right, James, thanks a lot. Appreciate your sharing your thoughts.
Mr. MOFFETT: Pleasure. Good to see you.
HAINES: James Moffett, portfolio manager at the UMB Scout Worldwide Fund.
