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Portfolio > Mutual Funds

Early Adopter of International Investing Sees the Payoff

By Marlene Y. Satter

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Bob Haley has been doing international investing for a long time. The founder of Advanced Wealth Management in Portland, Oregon, Haley said his firm has been at it quite a while and were already at about 15–20% international when it began to devote particular attention to international investing around 1997–1998.

“We started doing more international investing [then] based on my sense of how investing was becoming more and more global and how much of the world’s stock market values were in the U.S. in the ’90s compared to the mid-’80s,” Haley said. “When I started in ’82, my memory is that U.S. stocks were about 70% of global market share, and by the late nineties it was closer to 50/50. Based on that and emerging trends, I felt it was unwise to limit [investing] to U.S.-based companies,” he said.

Hale said he had a good feel for that, because “We manage money ourselves. We do use some mutual funds and ETFs,” he adds, “but also a lot of individual securities and to do that we do a lot of research, not just on companies, but on global trends.”

While the firm sticks to U.S. exchanges to do its investing, buying ADRs for the large foreign companies it wants, ETFs and mutual funds allow it to take advantage of smaller companies abroad and in areas in which Haley is not comfortable picking stocks.

Currently, AWM is not focused on any particular region or country, although “a couple of years ago we were over-weighted in emerging markets.[A]t the moment no particular region interests me as much as making sure we’re diversified by size—small, mid and large—and value,” he said.

However, he does have some insights to offer. “I don’t understand Africa or the Middle East, so we don’t invest there. At one time we had a fair amount in India, [but we] pulled out a couple of years ago and I don’t want to go back. As for the rest … Banco de Chile has really been a nice bright spot. Another one is Lan Chile—an airline [formerly LAN] that’s now called LATAM Airlines Group. It’s come down a lot this year, but we’ve held it a long time and it’s worked well for us over the long term,” he said.

Further, Westpac Banking Corporation, from Australia and Australian index fund EWA have been on the buy list for the past several months, Haley said. Several years ago, the firm bought New Zealand Telecom. “I think they’ve delisted from the NYSE, and we haven’t been buying it lately, but at one time it had a very attractive dividend. The earthquake hurt things, but it’s a captive market and a regulated industry, [as well as a] high dividend,” he said. Australia is an economically sound bet, he believes, because “it’s English-speaking and has commerce with the U.S., England, and Europe, but it’s easy to get to China and Asia.”

Haley said international investing is complicated by the amount of business U.S. firms do abroad, and vice versa. “Is Lexus a Japanese company since they sell so much to the U.S.? Is GE international? I don’t think we have good measures anywhere, as we look to balance our portfolios, that tell us anymore. Go down the S&P 500, and I’ll bet 80% generate significant revenue outside the U.S.,” he said.

“GE has said 60% of its growth will come from emerging markets, but they’re still a U.S. company. Up till 2010–2011, I felt comfortable with existing measures of what constituted U.S. and international companies, but more and more I’m convinced that doesn’t make much sense. Starbucks is making more outside the U.S.; it’s a complicated world,” Haley said. One thing he’s very clear on, though: “We’re making the most of growth outside the U.S.,” he added.

Some of the most dependable growth has come from Diageo, the British liquor company, Haley said. “We started buying that primarily in 2008 and 2009 when everything was so cheap, and that’s just been wonderful. They own Guinness, Kettle One, Bailey’s, [and a number of] scotches.” One reason for Diageo’s dependability is that it is world’s largest whisky producer, responsible for some 40% of global scotch production, he said.

Regardless of where in the world a firm makes its money, “we’re still looking for some pure international plays. So if we want to be 10% healthcare, we will look to have at least one or two names internationally based, regardless if most of their income comes from the U.S. or not,” Haley said.

But if those companies are smaller, the answer isn’t ADRs. “This is where mutual funds and international bond funds come in. If we are underweighted in small companies, we will buy a U.S. [company] there and find an ETF that focuses on international small companies. We are still looking to run 15%–30% international. That’s the target. But it’s more vague now as to whether that really does represent our international participation,” he said.

“We’re looking first for overall performance, and second, as a way to improve performance, we want diversification and balance. I can’t imagine I would be in a position of saying it would be prudent for us to be 100% U.S. stocks and U.S. only,” he said.

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