From the May 2007 issue of Investment Advisor • Subscribe!

All Around the World

Europe, Asia, and Africa are all ports of call when Robert Levitt looks for investments, and clients

Lots of fathers take their kids to work. It makes sense to let them see what Dad does when he leaves the house in the morning, particularly if he's gone for extended periods. In that sense, Robert Levitt is like many other fathers, but when he takes his kids to work it might mean a trip to Japan and China, as was the case when his 12-year-old son was on spring break this year. It could also be a visit to Dad's new office in Paris, or possibly something considerably more exotic.

Last summer Levitt took his 15-year-old daughter with him on a trip to Africa that included a stop in Guinea. They arrived at night and through a misunderstanding had no one to meet them nor any place to stay. The other Westerners on their flight were all picked up by someone and soon the Levitts found themselves in a place with no cell phone service and "crowds of people around us telling us in French that they were hungry and wanted money. That was a bit of an interesting experience," he recalls. "So we had to sort of fend for ourselves, find ourselves some currency, find ourselves a hotel, and make contact with our hosts in what is probably the second-poorest country in the world."

Levitt, who is founder and chief investment officer of Levitt Capital Management, headquartered in Boca Raton, Florida, talks about the event as if it were just another day at the office. In the same matter-of-fact tones, he describes his 12-person firm as "wealth managers," which he defines as "someone who designs asset allocations. We also manage the money as well," he adds. "So, we're a combination wealth manager/money manager."

Investing Globally

Currently Levitt and his team manage about $400 million for 100 different families using an approach that emphasizes absolute returns. "We tell our clients that our objectives are to earn a low-teens return, annualized over three years, with no calendar [year] losses," he says. Attempting to deliver a consistent return regardless of market performance, Levitt says, forces him to think differently than most financial advisors. "They don't believe they can control the risk, therefore they stay fully invested all the time. We believe we can control the risk, so we're much more active on our investments and our approach."

When worldwide markets fell in late February, Levitt says his first reaction was to raise cash. "We reduce the level of risk exposure that we have in our clients' portfolios," he explains. "Conversely, as our returns increase, we tend to add risk exposure. In that way we've been able to achieve a high return in the years when the markets are producing high returns, but protect our clients in years when the market is heading down."

Because the ability to raise cash at a moment's notice is a keystone of his investment approach, Levitt eschews alternative investments. "We don't do any private equity," he says. "There's enough money to be made to reach our goals in public equity markets, and we also want the liquidity. Private equity is a different business and I'm not sure our firm is really set up to be good at it."

Stocks, bonds, commodities, and currencies are all considered when putting portfolios together, Levitt says in explaining his approach. "We look at them globally. We'll focus also on our clients' international purchasing power, not just purchasing power defined by the U.S. dollar."

Not afraid to blaze his own path, Levitt disagrees with the traditional definition of diversification. "I was taught that diversification would be to buy a large-cap growth fund, a large-cap value fund, a small-cap growth fund, and a small-cap value fund, and maybe an international fund."

He points out that approach works great when everything is going up, as in the 1990s. But when equities declined globally in 2000, it became apparent that diversifying equities with more equities doesn't provide any kind of protection. "So what we want to do is diversify portfolios into those four different categories [stocks, bonds, commodities, and currencies ] that would give us a whole lot more of what I would call real diversification."

Right now the portfolios Levitt manages are heavily weighted toward overseas investments. "The majority probably right now is outside the United States, not because we always want to be outside the United States, but the real growth opportunities appear to be in other places than the U.S. The U.S. dollar, particularly this year, has been weakening again, so any exposure we have outside the U.S. benefits from the weaker dollar."

Looking for Themes

Although Levitt takes an active approach to investing, that doesn't mean that he and his team are looking for short-term places to park their clients' money. "We look for themes that will last for years and years and years--things that we expect to occur over a long time," he explains.

During the first six years of this decade, that meant a big focus on oil and gas and base metals, built on Levitt's broad theme--the rise of the middle class in developing nations. "Now we've moved into a new area which is sort of growth on top of that first theme now that the middle class has been growing, and I'm talking about not just China and India, but many parts of the world," he says. "I was recently in Nigeria and the same kind of thing is happening there. One of our big themes now is the growing requirement for animal protein, which has led us to many agricultural and agribusiness stocks around the world. There are fertilizer companies, equipment-manufacturing companies, seed provisioning companies that are all contributing to the increased demand for animal protein."

Also part of Levitt's agribusiness focus is what he calls "the ethanol issues." Political pressures in the U.S. have led to an increased demand for corn to produce ethanol, thus pushing up the price and having some unforeseen results. "Mexico is having riots because the price of tortillas is increasing. That's a direct result of all the corn that's going into ethanol in the United States," says Levitt.

After identifying themes, Levitt then looks for investments that will help him capitalize on the trends his researchers have identified. "There's a lot of money going into Africa now for the mining industry," he says by way of example. "There's money coming from Western companies, there's money coming from Indian companies, there's money coming from Chinese companies, and all that money is helping to propel the African economies."

As those African economies grow, that leads to more opportunities. Levitt cites a technology like cellular phone service which is taken for granted in Western nations, but which is revolutionizing life in developing nations. He cites the example of a farmer who used to have to walk his cow to market, maybe several hours away, to see what the market price was, but now he can call that city and find out the going price before he leaves, or craftsmen who can now advertise their services with a cell phone number. "Globalization is creating an environment that is so different than the environment of the '90s when the United States was king.

"We spend a lot of time looking at how globalization is impacting companies and countries around the world and we try to take advantage of that in many different ways."

When natural gas prices started to rise in the U.S. earlier in this decade, domestic fertilizer companies whose primary raw ingredient was natural gas became non-competitive, and Levitt looked for investments overseas. "We ended up buying companies in fertilizer, but outside the United States, where they had low-cost sources of natural gas, like Norway or Israel or Egypt. So we look at things that occur in the United States and how they play out around the world. Globalization is integrated in almost everything we do."

Out in the Field

Levitt isn't the type to sit back in his office in Boca Raton and try to gauge what's going on around the world via computer. He wants to get out and kick the tires before he buys a car, which means he spends about five months a year traveling. In the first three months of this year he was in Nigeria, South Africa, Mozambique, China, Japan, Switzerland, and France. He has trips lined up for the balance of the year to Singapore, India, and Hong Kong, among other locales.

While he takes his family with him as often as possible, Levitt's globetrotting does cut down on face time with clients. He tries to hold group luncheons and seminars for clients in the Boca Raton area during the winter months when the area's population is the highest. But his clientele, like his investment model, is global. "I tend to run into clients in strange places," he notes, mentioning a recent dinner with a client who happened to be visiting Capetown, South Africa, at the same time.

He also tries to send out a client e-mail once a week that lets everyone know where he is and what he's thinking. "What I'm thinking right now is what I would tell you if you were a client, and it might be very different from what I was thinking two weeks ago," he says. "Providing a running commentary of the kinds of things I'm looking at and how we see the world allows me to stay in touch with them so they have a very good sense of what I'm thinking, why we're doing what we're doing, where I am, what's going on. They feel like they're getting a lot of direct communication with me, but I can send that out from anywhere in the world."

When the firm grew to the point where a satellite office was feasible, not surprisingly Levitt looked overseas. He opened an office in Paris, with one full-time staffer, late last year. He says the addition of a European base was in response to clients' wishes. "We had requests from clients that were non-U.S. citizens that they wanted us to manage money for them, but not in the United States," he explains. "That led us to developing the relationships in Europe and opening an office in Paris. It's been very interesting because, in my opinion, the secret to investing is to be able to see the world a little bit different than everybody else. By visiting Europe, being in different countries, seeing the thought process of different people, it allows me to have a perspective that's much broader than a lot of people."

Moving into Europe is a mixed bag. Levitt notes that in terms of investment products and the types of fees that are charged, the financial service industry on the Continent seriously lags that in the U.S. "We think we have an opportunity to take a product that is very competitive on every level--in terms of cost, in terms of returns, in terms of sophistication--and introduce it to the European market, which really has not had the availability of this sophisticated approach, except maybe in London," he explains.

On the downside, operating costs in Europe are much higher. "In Europe there's value-added tax that a client has to pay--there's another 25 basis points that they have to pay to tax. In Switzerland they charge 15 basis points on every trade that goes to the government. Custody is much more expensive in Europe," he says. And that's before considering the employments issues in France, where Levitt says the social security taxes that he has to pay are about 50% of the employee's salary. "It's not nearly as simple as it is working in the United States. On the other hand, by learning those things, I think it makes us better investors. It makes us much more knowledgeable."

As part of his European approach, Levitt is currently working on putting together a Luxembourg-based fund that will be "marketed pan-European," and is forming relationships with Swiss banks to bring in some of his South American clients.

"The end goal of the firm is to have global investments and global clients," he says. "As we learn we get better.

Never Giving Up

With his global approach to investing, Levitt has to deal with the fact that there's almost always a market open somewhere, but he seems to thrive on it. The same thing drives him today as when he first entered the business. "Making the numbers go up," he says with evident joy. "People like me, that's what we live for. You don't sleep much and you don't take holiday. You're always thinking and everything that happens around the world affects you, but I get to meet the most incredible people around the world. I get to learn things. I don't ever see myself retiring from this industry. Once it gets in your blood, this is who you are, this is what you do, and that's what makes you good at it, the passion for it."

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