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The Maxwell Approach: Find Value Stocks Benefiting From Global Macroeconomics

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John Maxwell, portfolio manager of the Ivy International Core Equity Fund, gets the best out of global stock markets through a combined top-down and bottom-up investment strategy that focuses first on positive, long-term macroeconomic trends, and then matches up attractively valued stocks from across the world that Maxwell believes have the potential to flourish as a result of those macro dynamics.

His current themes are: The rise of the emerging markets consumer; solid and durable dividend yields; and M&A activity and infrastructure, a key requirement for emerging market nations and which, in developed markets, needs serious revamping.

Maxwell uses a combination of country analysis and industry dynamics to look for companies with a good, competitive position and strong prospects for free cash flow that fit under the umbrella of those themes.

“These main themes, except for M&A, which can only be played in a cycle, are long lasting,” Maxwell said.

The emerging markets consumer theme, for instance, has a long way to go, “moving from manufacturing to the Internet and then to luxury goods and beyond,” Maxwell said, and historically, dividends have made up more than half of total market returns, “so with rates as low are they are, we believe that dividends continue to be important.”

As for infrastructure, it’s a multi-faceted space, Maxwell said, and it includes sectors like energy, power and transportation, as well as the Internet. The fund owns six Internet stocks and also invests in a variety of infrastructure plays that range from “government projects to [Chinese e-commerce giant] Ali Baba,” he said.

Maxwell’s fund is primarily a developed market fund, but it can allocate up to 15% of assets under management to emerging markets. Currently, the fund is at the higher end of that because He said that emerging markets are trading below their absolute value and are attractive from that standpoint. At the same time, though, “emerging markets generally do better in a stronger GDP environment and so far, we haven’t seen that happening, so we are selective about what we buy in emerging markets.”

Aside from some exposure to countries like India, South Korea, China and Taiwan, the bulk of the fund’s emerging markets exposure actually comes from developed country stocks that benefit, either directly or indirectly, from what’s happening in emerging markets. Maxwell cites companies like Volkswagen, whose revenues have been greatly boosted by increased sales in developing economies (the company has also posted good dividends), and medical care company Fresenius, which Maxwell said is “way ahead of everyone in emerging markets.” In the U.S., he has also invested in Yahoo and Cognizant, for example, both of which get substantial revenue from emerging markets, “so if you put that all together, it makes up our 15%,” he said.

In the developed world, where macroeconomic uncertainty has prevailed and continues to cast a pall on markets, Maxwell has also succeeded in finding companies with good potential. French construction company Bouygues is one example of a positive turnaround story where the chairman has been doing a number of things to improve business, and Maxwell also said he likes Vinci, another construction company in France. Overall sentiment has been negative for France, he said, but these companies have solid businesses in their sector and “they play well into our dividend yield theme.”


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