{"id":54718,"date":"2023-08-30T04:57:34","date_gmt":"2023-08-30T08:57:34","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/a-fund-that-wins-with-contrarian-foreign-stock-picks\/"},"modified":"2023-08-30T04:57:36","modified_gmt":"2023-08-30T08:57:36","slug":"a-fund-that-wins-with-contrarian-foreign-stock-picks","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=54718","title":{"rendered":"A Fund That Wins With Contrarian Foreign Stock Picks"},"content":{"rendered":"

Patience is a virtue for contrarian investors, who often must wait to see their investments in unloved stocks get rewarded.<\/p>\n

Rich Winkowski, head of the international equity team at Federated Hermes and senior portfolio manager of the $1.2 billion
\n Federated Hermes International Leaders
\n fund (FGFAX), has used a patient, contrarian approach since 2009, when he was first named as fund co-manager. Being patient is one way International Leaders stands out from other large, foreign blend-funds.<\/p>\n

\n

\u201cWe have time on our side, since we\u2019re focused mainly on annual earnings and quarterly earnings trends,\u201d he says. \u201cLooking at it on a longer-term basis, you can really get some substantial variance in earnings expectations.\u201d<\/p>\n

Winkowski, 53, sums up his strategy neatly: Take a contrarian view toward bottom-up stock selection to create a concentrated portfolio of 60 to 80 names of large, industry-leading companies that trade at a substantial discount to intrinsic value, and hold them for at least two to four years. The fund\u2019s returns show that sticking with this philosophy has paid off.<\/p>\n

International Leaders beats its large, foreign blend peers on a 10-year basis with an annualized return of 4.7%, according to
\n Morningstar,<\/span>
\n also besting the fund\u2019s benchmark, the MSCI EAFE Index. It has a front load of 5.5%, and Morningstar notes the fund\u2019s 1.1% annual expense ratio is considered below average. <\/p>\n

The New York City\u2013based Winkowski, co-manager Dariusz Czoch, and their team of nine analysts\u2014who average 17 years of experience\u2014seek to buy stocks that are trading sharply below the team\u2019s intrinsic value estimate, looking for discounts of 60% or more. They used to pencil out a three-to-five-year holding period, but recent market volatility has cut that time frame to two to four years. <\/p>\n

\u201c[Prices] move pretty violently when they start to work,\u201d he says.<\/p>\n

Defining intrinsic value depends on the sector. In consumer staples, for example, price-to-earnings ratios and cash flow are key, while in technology, relative valuation to history and peers gets more weight. <\/p>\n

The team starts its research with a front-end screen to flag potential candidates; then the legwork commences. Each analyst conducts more than 250 company meetings annually, looking for strong management teams with good governance practices, and Winkowski\u2019s team compares notes with the larger Federated Hermes equity and fixed-income staff to incorporate more input. Another unique aspect versus peers is the risk-management analysis that team member Chase Stewart, a quantitative analyst, conducts on holdings, which verifies that portfolio risks are intended and sized accordingly.<\/p>\n

As a high-conviction, concentrated fund, managing position size matters, whether it\u2019s adding a new name or pruning holdings. Winkowski has a laundry list of possible candidates to buy if prices look attractive, and will establish a small toehold at first. The team often reviews holdings to re-evaluate growth and goals, selling those that are fully valued or lifting price targets if growth persists.<\/p>\n

\n Rolls-Royce
\n (RR.UK), a top provider<\/strong>and servicer of large aircraft engines, exemplifies this process. The fund established a 1% portfolio-weight position in December 2022. The stock was pummeled by travel curbs during Covid. New management took over in January, focused on profitability and cash flow, and, liking what he saw, Winkowski eventually doubled the fund\u2019s position. The stock is up 120% from that first buy, and Winkowski thinks it still has 50% to 60% upside.<\/p>\n

Covid\u2019s market impact offered Winkowski a rare chance to bank on a theme\u2014that leisure and business travel would rebound to 2019 levels this year. Those picks have powered year-to-date and one-year performance. In addition to Rolls-Royce, International Leaders bought British-based
\n Informa<\/span>
\n (INF.UK), one of the largest global trade-show and events operators, in March 2021. In September 2021, it bought another United Kingdom firm,
\n SSP Group
\n (SSPG.UK), a leading food-service operator in travel locations such as airports and train stations.<\/p>\n

Since March 2021,
\n Informa
\n has risen about 23%. Winkowski thinks the stock has about 25% upside left. SSP Group has been tarnished by concerns about U.K. consumption, despite only having 20% of its business there. Winkowski believes it may see 50% upside.<\/p>\n

The International Leaders fund performs best when bottom-up fundamentals matter. Top-down macro dislocations offer buying opportunities, but sometimes particularly heavy doses of negative macroeconomic news weighs on annual returns, such as in 2018. That was a tough year for equities generally, and International Leaders sharply lagged behind peers, hurt by its overweight to European financials when those bank stocks suffered their worst year since 2008. In response, the fund became more diversified across sectors, which has helped returns.<\/p>\n

International Leaders\u2019 biggest county exposures are to the U.K. and France, but Japan now has the third-largest weighting. Winkowski is excited about Japan because, for the first time in decades, the country is starting to see growth, with both inflation and wages increasing. He made a small dip into Japanese banks in the second quarter of 2022, including
\n Sumitomo Mitsui Financial Group
\n (8316.Japan), and in April he bought
\n Mitsubishi Heavy Industries
\n (7011.Japan), which builds aerospace parts and also has an aftermarket-parts business. <\/p>\n

<\/p>\n

<\/p>\n

\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/th>\n <\/th>\nTotal Return<\/th>\n <\/th>\n<\/thead>\n
<\/td>\n1-Yr<\/b><\/td>\n5-Yr<\/b><\/td>\n10-Yr<\/b><\/td>\n<\/tr>\n
FGFAX<\/b><\/td>\n21.4%<\/td>\n4.9%<\/td>\n5.1%<\/td>\n<\/tr>\n
Foreign Large Blend Category<\/b><\/td>\n12.9<\/td>\n3.2<\/td>\n4.5<\/td>\n<\/tr>\n
Top 10 Holdings<\/b><\/span><\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n
Company \/ Ticker<\/b><\/td>\n <\/td>\n% of Assets<\/b><\/td>\n <\/td>\n<\/tr>\n
AstraZeneca \/ AZN.UK<\/b><\/td>\n <\/td>\n4.2%<\/td>\n <\/td>\n<\/tr>\n
Siemens \/ SIE.Germany<\/b><\/td>\n <\/td>\n3.5<\/td>\n <\/td>\n<\/tr>\n
Prudential \/ PRU.UK<\/b><\/td>\n <\/td>\n2.8<\/td>\n <\/td>\n<\/tr>\n
Deustche Telekom \/ DTE.Germany<\/b><\/td>\n <\/td>\n2.5<\/td>\n <\/td>\n<\/tr>\n
Entain \/ ENT.UK<\/b><\/td>\n <\/td>\n2.5<\/td>\n <\/td>\n<\/tr>\n
Nestle \/ NESN.Switzerland<\/b><\/td>\n <\/td>\n2.3<\/td>\n <\/td>\n<\/tr>\n
Anglo American \/ AAL.UK<\/b><\/td>\n <\/td>\n2.2<\/td>\n <\/td>\n<\/tr>\n
Novo Nordisk \/ NOVOB.Denmark<\/b><\/td>\n <\/td>\n2.1<\/td>\n <\/td>\n<\/tr>\n
Sanofi \/ SAN.France<\/b><\/td>\n <\/td>\n2.1<\/td>\n <\/td>\n<\/tr>\n
ASML Holding \/ ASML.Netherlands<\/b><\/td>\n <\/td>\n2.1<\/td>\n <\/td>\n<\/tr>\n
TOTAL<\/b><\/span><\/td>\n <\/td>\n26.3%<\/td>\n <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Note: Holdings as of July 31. Returns through August 28; five- and 10-year returns are annualized.<\/p>\n

Sources: Morningstar; Federated Hermes<\/p>\n<\/div><\/div>\n<\/p><\/div>\n

\n Mitsubishi
\n will benefit from Japan\u2019s intent to increase defense spending to 2% of gross domestic product by 2027, Winkowski says. Japanese banks may benefit when rates start to creep higher as the
\n Bank of Japan
\n adjusts its yield-curve control, provided the central bank manages the adjustment in rates well.<\/p>\n

Even with the recent market weakness in the U.S. and Europe this summer, he\u2019s positive on the rest of the year, believing the interest-rate-hiking cycles are nearly done in both places. And he\u2019s seeing value in his own fund. <\/p>\n

\u201cI\u2019ve been buying up my own fund as of late. I\u2019m pretty confident in the names and\u2026the upside we have in our names,\u201d Winkowski says.<\/p>\n

Write to <\/strong>Debbie Carlson at debbie.carlson@wsj.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Patience is a virtue for contrarian investors, who often must wait to see their investments in unloved stocks get rewarded. Rich Winkowski, head of the international equity team at Federated Hermes and senior portfolio manager of the $1.2 billion Federated Hermes International Leaders fund (FGFAX), has used a patient, contrarian approach since 2009, when he […]<\/p>\n","protected":false},"author":1,"featured_media":54719,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-54718","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nA Fund That Wins With Contrarian Foreign Stock Picks | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Patience is a virtue for contrarian investors, who often must wait to see their investments in unloved stocks get rewarded.Rich Winkowski, head of the\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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