For Clem Miller, investment strategist at Wilmington Trust Advisors, investing wisely in international markets is all about picking and choosing the right names from what he calls “a global opportunity set,” one that’s comprised of world-class companies that are located in various different jurisdictions and that derive their revenue from running successful, global businesses.
“We want to take advantage of this global opportunity set so we go for the best companies in each geographical segment,” Miller said. The firm’s operating term is “best,” which, Miller said, Wilmington Trust defines in a couple of different ways.
For one, the firm likes companies that are listed in both large and small developed markets (the United States included), but that invest globally throughout the emerging markets. And then, they also like companies located within the emerging markets themselves, since “emerging markets offer the greatest growth opportunity and we as investors would like to benefit from the growth,” Miller said.
And of course, value is also important, “because we don’t want to invest in expensive names that will grow fast. We want to ideally be invested in names that are inexpensive but that offer value over time, so we’re more interested in growth opportunities than in value,” Miller said.
Because Wilmington Trust doesn’t pick stocks itself, the choice of which managers and funds it uses is very important indeed. The company uses various sources of information to evaluate particular investment managers, for their ability to choose asset classes, geographies and companies to invest in, as well as navigate global macroeconomic trends, such as the ongoing weakness in many emerging market currencies.
“If you invest internationally, you are getting the currency diversification that you didn’t have before and you can actually benefit when foreign currencies are strengthening and earn more in dollars, even if local stock market returns are not strong,” Miller said. “So currencies are important by themselves but it’s also important to get a handle on currencies because returns are very highly correlated to what is happening to a particular currency.”
And while individual geographies by themselves don’t matter so much to Wilmington Trust, there are nevertheless some issues that affect certain countries more than others, and the company looks to its selected managers to be aware of those.
“In some countries, the standards of corporate governance, for example, are lax, and the courts are not as free and transparent as we’d like them to be,” Miller said. “One can hesitate in investing in those countries so we pick and choose among managers to see who’s investing where, and we carefully monitor our managers, talking to them once a quarter in tandem with their reporting cycles, about their investments, rationale and so on. If we don’t like where they’re investing, we won’t go with them.” Miller and other members of the team travel often to meet the managers, most of whom are located in London and New York, with a few in Chicago, face-to-face in order to interact closely with them and maintain a close relationship. Miller worked at the Export-Import Bank of the United States for 15 years, during which time he had the opportunity to travel to many different places in the world. Although he doesn’t travel too much in his current position, he believes it’s important for the managers and analysts of the investment products that Wilmington Trust chooses to be seeing the world up close. His experience of world travel has given him a keener and more informed sense of what’s happening in the world, and this has helped him become Wilmington Trust’s bespoke “International Guru,” he said.
Wilmington Trust favors actively managed funds over ETFs because “ETFs aren’t exposing investors to either the best or the worst companies as they’re passive investments,” Miller said. “They work best if an investor has a view on a particular country doing well, but we favor an active management strategy for what we’re looking to achieve.”