Learn from and meet Charles de Vaulx, Chief Investment Officer of International Value Advisers, at European Investing Summit 2012, the largest fully online investment conference.
In his keynote address, Charles will share his time-tested approach, explain the processes that have enabled him to navigate past crises, and provide guidance on how investors can avoid the pitfalls of the eurocrisis and position their portfolios to preserve and grow purchasing power. You’ll benefit from exclusive insights by one of the greats in the investment business and have the ability to ask live questions of this legendary investor.
Charles de Vaulx joined International Value Advisers in May 2008 as a partner and portfolio manager, and serves as chief investment officer, partner, and portfolio manager. Until March 2007, Charles was portfolio manager of the First Eagle Global, Overseas, U.S. Value, Gold and Variable Funds, together with a number of separately managed institutional accounts. He was solely responsible for management of the Sofire Fund when it won an Absolute Return Award for “Fund of the Year” in the global equity category in 2005 and 2006. Charles graduated from the Ecole Superieure de Commerce de Rouen in France and holds the French equivalent of a Master’s degree in finance.
Secure your spot at European Investing Summit 2012 today. Don’t delay, the 40% special discount expires Friday, September 28th!
Here are the never-before released excerpts from our exclusive interview with Charles de Vaulx:
Q: You describe your investing approach as cautious and opportunistic. How is that reflected in security selection and overall portfolio construction?
A: Well, I think I’ll try to answer your question in a sense of how that cautious and optimistic approach is reflected today, as we speak, in the overall portfolio construction of our funds and the way we pick stocks.
I think that our portfolio today is truly eclectic and multi-cap. Of course, if you look at the top ten holdings you’ll find mid-cap or larger cap stocks. But if you look at our holdings in Asia, where statistically today the small cap stocks are much cheaper than the large cap stocks, you will find a wide array of stocks. We also hold some mega-cap stocks: TOTAL S.A. (NYSE:TOT), I don’t know if
You also see our cautious and opportunistic ap proach reflected in the fact that we own some bonds. In the IVA Worldwide Fund here in the U.S., we have a little less than 9% in high-yield corporate bonds, mostly a residual from a lot of bonds we were buying late ’08-’09. So, as a result, many of these bonds will be maturing shortly in the next year or two or three or four. So it’s short-duration, high-yield corporates. The yield is not huge. Today, we’re talking about 4%, but these are what we deem extremely safe instruments and because the duration is short, there’s no interest rate risk there.
You also will notice the eclectic nature by the fact that we have some sovereign debt, and it’s approximately 5.1% of the portfolio. It’s
mostly short-dated government debt from Singapore. The coupons, the yields, are de minimis. Here the attempt on our part is to hopefully get an equity-type return out of the underlying currency. The hope is that the Singapore dollar will keep appreciating over time and, of course, in two years from now when those bonds mature the idea is to just roll them over and buy new similar short-dated bonds and to remain exposed to the Singapore dollar. Because that country doesn’t have much of a fiscal deficit, there’s not much of a long-dated government bond market to begin with.
You’ll see the eclectic nature by the fact that we hold some gold in the portfolio, both bullion and gold-mining shares. I am happy to have convinced Jean-Marie Eveillard in late 2001 that gold-mining shares were so obscenely expensive, overpriced, that if we wanted exposure to gold we had to modify our prospectus to give ourselves the right to hold gold bullion. It’s been a great move! We own a few gold mining shares, but it’s really de minimis and only in our U.S. registered mutual funds. Our preference remains, by far, towards holding gold bullion.
You’ll notice that at the end of June  we had 12.4% in cash. In some ways you may want to view those short-dated, Singapore dollar bonds as quasi cash in Singapore dollars. The fact that we’re not fully invested tells you that we are worried that we think that, by and large, stocks are not dirt cheap enough to be fully invested.
If you look at the kinds of names we own in stocks or at least if you look at the top-ten holdings, you’ll notice that the balance sheets of
the companies we own are very strong. We are very fond of the expression Marty Whitman coined a while back, which is that it’s not enough for a stock to be cheap, it also has to be safe – “safe and cheap”. Safety starts with the balance sheet.
The cautiousness of the portfolio is expressed by the fact that we are making some negative bets. We have virtually no financials except for a few insurance brokers, except for – and we may talk about it later – some tiny positions in Goldman Sachs Group, Inc.(NYSE:GS), UBS AG (USA) (NYSE:UBS). Financials in the U.S. are slightly too expensive and in Europe we think that most banks remain grossly undercapitalized.
Another negative bet you’ll notice is that, other than a few stocks in South Korea, we have virtually no exposure to emerging markets. We have no direct exposure to the BRICs – Brazil, Russia, India and China– because even though these stocks have come down a lot last year and some of them this year, we believe that these stocks are dead. We are cautious and worried about what’s going on in China. We believe that a soft landing is in the cards, and hopefully that will not become a hard landing. Any sharp slowdown in China will have major consequences for commodity prices, which in turn will hurt many emerging countries.
Some specific countries like India have obvious issues with inflation and current account deficits, not to mention problems with their
electricity. We’ve seen in Brazil over the past year-and-a-half how government intervention has had the ability to hurt investors. Investors in Petroleo Brasileiro Petrobras SA (NYSE:PBR) have seen President Rousseff, basically ask the company to think more about what’s good for Brazil Inc. as opposed to doing what’s right for the company’s shareholders.
Also, we worry about what’s going on in Europe. We’re not sure what the outcome will be. It’s a big unknown and the way we express our skepticism towards what’s happening in Europe is by being 65% hedged on