Inside Wall Street: One Manager's Way of Immunizing Against Panics

Gene Marcial's Inside Wall Street
Gene Marcial's Inside Wall Street

Is the modern-day Greek tragedy that's roiling the markets driving you nuts? After a plunge of nearly 900 points on Thursday afternoon before bouncing back to close down a mere 347.8, it's understandable if you felt panic or are racing to switch to a highly defensive, inward-looking strategy. But that won't happen if you've seen similar crises before -- and have prepared for such domestic or global calamities.

So, Greece's fiscal crisis hasn't much mattered to Peter Newell, managing director at Swiss-based Vontobel Asset Management, who oversees the investment firm's foreign investment portfolios. "The Greek problem hasn't change anything in our strategy as we have immunized our portfolios against credit or liquidity problems in all major areas of the world," he says. How? Mainly by investing in multinational companies that have dominant presence worldwide in their particular markets.

As chief adviser to Vontobel's Virtus Foreign Opportunities Fund (JVIAX), which invests mainly in European companies, and Virtus Emerging Markets Opportunities Fund (HEMZX), Newell shares responsibility in formulating investment policy. In essence, the global concern over Greece hasn't prompted Vontobel's Virtus Foreign Opportunities and Emerging Markets funds to alter their portfolio holdings.

Investing Heavily in Controversial Sectors

To achieve capital appreciation and outperform the market over time, "we invest in well-managed businesses with consistent operating histories and financial performance that have favorable long-term economic prospects," says Newell.

When the risk-reward ratio is appealing, Vontobel dares to invest heavily even in controversial sectors that many U.S. investors tend to avoid. For instance, an industry that it expects to reap bountiful rewards over the long haul is tobacco. Among its top holdings in tobacco are British American Tobacco (BTI), Phillip Morris International (PM) and Imperial Tobacco (ITYBY).

These stocks are attractively priced growth opportunities, says Newell. Despite the rising unpopularity of smoking in the U.S., the non-U.S. markets are thriving, with very limited litigation outside North America. He notes that increased regulation such as smoking bans and warning labels haven't significantly affected demand. And in countries where sales volume has declined, revenues continue to grow through price increases. At the same time, "these tobacco companies generate a lot of cash," says Newell.

Global Tobacco Market Leaders

The appeal of London-based British American Tobacco, the world's second-largest tobacco company, is that its strength in emerging countries and in particular has dominant market share in Brazil, India and South Africa. With a strong balance sheet, British American should be able to deliver high single- to low double-digit earnings per share for the foreseeable future, says Newell. Now trading at $54 a share, its valuation is attractive for the level of growth it may provide, he adds.

U.S.-based Philip Morris International (PM), spun off by Altria (MO) in early 2008, is the largest publicly held producer and marketer of tobacco products, including the popular Marlboro brand. Philip Morris is currently trading at $48 a share. It's the leader in developed nations such as France, Germany and Italy. And it's a major brand in developing countries, including Poland, Ukraine, Turkey, Indonesia and Mexico. The company is also expected to post strong earning in coming years. Some analysts expect the stock to hit $59 in a year.

Imperial Tobacco is the market leader in Spain and the U.K. and the second to Philip Morris in France, Germany and Italy. It's the cheapest of the tobacco companies, notes Newell, recently trading at 10 times estimated 2010 earnings. Philip Morris and British American trade at about 13 times their estimated 2010 earnings.

Bottom-Up Approach

Among the other stocks the Virtus funds are high on are HDFC Bank (HDB) in India, which is listed on the New York Stock Exchange and currently trades at $135 a share; Enagas (ENGGY) and Red Electrica (RDEIF), the two national monopolies in natural gas and electric transmission in Spain, trading at $8 a share and $45 a share, respectively; Munich Re, a German reinsurer, trading in London at 105 euros a share; and Nestle (NSRGY),.the world largest food company, currently trading at $45 a share.

As a bottom-up type of investor, Vontobel isn't guided by its macroeconomic view of the world. "Careful company selection" is behind our stock choices, says Newell. He advises clients to be patient and have confidence in quality companies selling at attractive valuations because they'll outperform over time. And more so as the global economy continues to recover -- as long as turmoil in Greece doesn't upset the progress now being made.