Independent Thinking^®

Q&A with Artisan International

Editor’s note: Evercore Wealth Management supplements its core investment capabilities with carefully selected outside funds across the range of the firm’s asset classes. Here we discuss active value investing with David Samra, Lead Portfolio Manager of the Artisan International Value Fund. The managers have historically produced consistent long-term performance and the fund contributes to Evercore Wealth Management’s international equity exposure, notably in Europe. Please note that this represents the views of Artisan and not necessarily the views of Evercore Wealth Management.
 
Q: How do you view the relative value of the U.S. and international markets now?
 
A: There are no significant investable equity markets around the globe that are, in our view, very depressed. Generally speaking, we believe that excess central bank liquidity has been supporting valuations of all securities and markets globally – and continues to do so.
 
Our strategy relies on security selection. This virtually eliminates the significance of broad-based market analysis. A good example of why this is so can be gleaned by thinking through something as simple as a price-to-earnings, or P/E, ratio-based comparison between General Motors and Alphabet, the holding company that owns Google. Even if General Motors has a much lower P/E than Alphabet, that fact alone is not enough to determine which security is likely to generate a better return. It is imperative to focus on the valuation in combination with other determinants of return, including stability and growth of cash flows, capital allocation, economic opportunity and corporate governance.
 
Our approach, combined with the correlated elevation of almost all stock markets globally, means that we find no meaningful insights into where we should be spending our time based on the relative value of any given region.
 
Q: How about sectors? Do any seem particularly attractive? What are you avoiding?
 
A: As value investors, we generally spend our time where prices have been in decline or where other investors hesitate to invest. There are few, if any, pockets in the market that are depressed. There are a few sectors where there have been price declines, including energy and generic pharmaceuticals. In addition, we find valuations in the financial services sector to present select opportunities.
 
Q: This portfolio fits broadly into the value category, but the portfolio currently includes some stocks with high market valuations. How do you think about value in the context of this portfolio?
 
A: Our general limitation on holding cash is 15% of assets under management. Today, the portfolio is very close to that. At the same time, equity markets continue to rally, causing many securities in the portfolio to trade at intrinsic value – i.e., typically a higher P/E – faster than our research platform is able to find replacement securities that are truly undervalued, i.e., a lower P/E.
 
Q: You have over $20 billion under management in the Artisan Non-U.S. Value Strategy as of July 31, 2017. Is it difficult to manage a focused portfolio of stocks when there is so much to invest?
 
A: Yes, in this market environment.
 
Q: Let’s talk about active management; a discipline that is broadly out of favor at present. Do you think the massive fund flows to passive investment strategies are warranted?
 
A: It makes sense to prefer an investment in a broad market index if you have no resources in place to determine the competency of an active manager. On the other hand, as stewards of capital, we would not consider investing capital in securities that we had not determined had good prospects, financial stability, and at least a reasonable valuation. For those who have the time and resources to think about investing, it is in our view absurd to believe that active management is an inferior investment strategy over the long term.
 
Q: How have you managed to outperform the passive indices? What are your expectations for the future?
 
A: Our objective is to find securities that help grow our clients’ purchasing power after inflation and taxes. We believe that over time, a portfolio of well-managed, operationally advantaged, and well-financed businesses purchased at an attractive price should provide both strong absolute and relative performance.
 
For more information about the Artisan International Value Fund and about other funds on the Evercore Wealth Management investment platform, please contact Stephanie Hackett at [email protected].