Quick Take: The Polaris Global Value Fund (PGVFX) seeks out stocks around the world, regardless of region, industry or market-cap size, which are underpriced and can provide sustainable cash flow.
For the year ended September 30, the fund has surged 36.7%, besting the 25.7% gain by the average global equity portfolio. For the three-year period, the Polaris fund has risen an average annualized 11.3%, versus a loss of 10.6% for its peers. The fund carries a 5-Star rank from Standard & Poor’s.
Bernard R. Horn, Jr., president and chief portfolio manager of the Boston-based investment advisor, Polaris Capital Management, has run the $26-million portfolio since its inception in June, 1998. However, the portfolio made its first debut in June, 1989, as a private fund.
The Full Interview:
S&P: To what do you attribute the strong performance we’ve seen from global equities and your fund this year?
HORN: I think it’s a combination of good underlying fundamentals, and a growing optimism that global economies will recover, particularly in Asia.
However, the overriding factor for the strong global performance is that valuations are much more compelling outside of the U.S. We continue to believe that foreign equity markets will outperform U.S. markets for the next few years.
For example, in the U.S., the price-to-cash-earnings ratio is over 12; everywhere else, it’s about 8. This means that the U.S. market is currently “priced for perfection” allowing for no mistakes or disappointments in the economy, and we believe this is an overly-optimistic view.
S&P: How many stocks are in the fund?
HORN: Currently it has about 70 stocks. We have increased the number of holdings in the portfolio because we are finding more value stocks, and as global markets recover, we want to participate more broadly in such a rebound, and not miss any of the quickly-advancing sectors.
S&P: What are your largest holdings?
HORN: As of June 30: Pacificare Health Systems, Inc. (PHS), 2.5%; Banknorth Group Inc. (BNK), 2.4%; Sappi Ltd. (SPP), 2.0%; Hawthorne Financial Corp. (HTHR), 2.0%; Sears Roebuck and Co. (S), 2.0%; ASM Pacific Technology, 1.9%; Amkor Technology Inc. (AMKR), 1.9%; Abington Bancorp Inc. (ABBK), 1.9%; Samsung SDI Co. Ltd. 1.9%; and Horizon Bank & Trust Co., 1.9%. These positions represented approximately 20.5% of the fund’s holdings.
S&P: What are your top regional allocations?
HORN: As of June 30: North America, 50.6%; Europe, 23.4%; Asia (excluding Japan), 9.0%; Scandinavia, 8.9%; Africa & South America, 6.2%. We currently have no exposure to Japan.
S&P: What are your top industries?
HORN: As of June 30: consumer discretionary, 24%; financials, 19%; industrials, 14%; materials, 13%; information technology,11%; and health care, 9%.
S&P: What is your view of Western Europe?
HORN: Many European companies are sending manufacturing capacity to low-cost nations like China, India and Eastern Europe. For example, one of our holdings, Continental AG, a German tire and car-parts manufacturer, has relocated some of its manufacturing operations to Romania and other Balkan nations.
We are more heavily-weighted in the U.K. than on the continent, particularly in the British home-building sector, where we are finding exceptional value and single-digit P/E multiples. Some of our favorite names here include Barratt Developments PLC and George Wimpey PLC.