George Evans is an expert at finding growth in a slow growth world, and his skills are certainly being put to the test. As director of equities, senior vice president and portfolio manager with OppenheimerFunds, he heads the global equity team in its mission to find alpha. So where is he finding it? Thankfully, Evans gets very specific (which we of course like), but is just as detailed as to why his team makes the decisions it does.
Where are you finding the good deals at a time like this?
There’s no doubt we are in a period of fiscal stress and are likely to have slow growth for the foreseeable future. But as a result, it’s a really good time to be picking up stocks on the cheap. The pace of income per capita is being driven up. As a result, we are well-exposed to luxury goods, as wealthy people have a hard time keeping their wallets in their pockets in good times and bad.
Premium, double-blended scotch has done well in every market segment and is proving to have robust growth in a slow growth world.
New technology is also an area of outperformance. It took, what, four days for the iPhone 4S to sell out? And according to Cisco Systems, growth rates for data transmission are growing at a rate of 100% year-over-year.
So brand names have tremendous value in consumer goods. In technology, we find anything to do with the deliverance, management or storage of information to be of particular value.
How do you see China shaking out?
We like to position ourselves in things that will help people. What we’ve found, particularly when it comes to China, is that government cannot effectively regulate price or prosperity. A larger part of consumer discretionary spending will be in items that improve a person’s quality of life.
For that reason, we see real value in the eyeglass lenses and frames sector. It’s estimated that 4 billion people need lenses and frames, but only 1.5 billion have them. In emerging markets, we find that more people have not just one, but several pairs of glasses. The same can be said for hearing aids. It’s estimated that everyone over the age of 75 needs a hearing aid, but only one-quarter of those have one.
Is this still a great time for value investors?
There are areas for growth, and the prices we’re being asked to pay are quite reasonable. A strong negative reaction can be used to build positions in great companies.
Do you get out and meet with management? Are you traveling constantly?
The global equity team meets with 1,200 companies each year, either on site or in New York. I personally take four trips abroad each year either to China, Europe or Australia. The team manages $60 billion currently.
What is your buy discipline?
Our fundamental research focuses on the companies we wish to own at some point, but we are very conservative with the price we will pay. Many managers are lax about valuation, because they feel they will get bailed out by growth. We don’t do that. But 2008 offered opportunities to get into great companies cheap. Burberry was down 50%, but is now up seven or eight times over the past four years. So it’s important to keep your eyes on the horizon.
What is your sell discipline?
We’re future-oriented, so we like to stay in. There has to be significant market deterioration in the fundamentals for us to get out. We like to occupy a spot in the value chain that makes for higher profits than normal. If regulatory or technological changes occur that compromise that spot, then we’ll sell.