David Herro, chief investment officer of international equities at Harris Associates, discusses the U.K. economy and markets in light of Brexit uncertainty, the European banking sector, and his outlook for natural gas and oil. He speaks on “Bloomberg Daybreak: Americas.” (Source: Bloomberg)
Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More
Harris Associates’ David Herro Looks Forward to an End of Brexit Uncertainty
David good to see you on today because 21 percent of your portfolio is in the UK. How do you make investments and deal with the uncertainty when Theresa May is trying to sell that breaks a deal to Parliament.
Well wouldn't we make any investment we look at the price we pay for what we're actually getting. And in the UK we actually see very good value in the value that we see partially is because of this uncertainty brought upon by this exit issue which has been lingering since really June of 2016. And one way or the next in the next three or four months the uncertainty with this Sprague's that will come to an end. Either they will do a deal which will. Indicate a softer. Is it or they won't do a deal. But it's been the uncertainty that has really hit price. And really when you look at the businesses themselves for the most part they're doing very well the UK economy still growing. Very low unemployment similar to ours. So despite all this noise which has really hurt prices we still see businesses perform and we think it will even get better and that's the uncertainty of Brexit is behind them.
How important is it to you and your investments that that uncertainty is put behind you within the next three months or so because we thought we'd know in March. Now there were some reports I don't know what's in this deal exactly with the reports that it may kick the can down the road by saying let's have an arbitration panel review the whole thing come July or all of. This to see whether we have a deal and if not maybe it we extend extended further than that. I think the more we can do. Away with uncertainty in any kind of Brexit Bill the better because uncertainty causes business people or consumers to delay decision making and anything that can be done to minimise uncertainty.
Will enhance consumer and business decision making. Now I will say this there is a lot of Brexit fatigue. If you go over there I mean people are just tired of it and I think either way they might just throw their arms up and go on living their life. But the fact is uncertainty is never good people and not plan for uncertain certainty.
We have the fatigue here at New York and that all the time as well. So a distinction if we get the kind of certainty what stocks look more interesting to you than they do today. Well I think for instance the stocks that have been hit the hardest.
Selling at the lowest valuations look at the banking sector in particular we are exposed to Lloyds and RBA. They will do very. Well even though again their earnings haven't been hit. The. Share price has been hit and perhaps people will feel better about. Vested in some of these businesses once this uncertainty is behind it. The other area is in kind of a consumer discretionary stocks in the United Kingdom which have been hit the exporters have done. Better because the pound has been weak. But the consumer. A local kind of smaller cap UK stocks haven't. Fared. Well as a result of this uncertainty and I would expect to see. A huge rally in some of these names especially given the. Ocean levels at a company like Travis Perkins as an example. Which sells into the building trade. So David let's talk about. This as across the Channel there because you also have some investment.
In BNP pár Boswells and taser. What are you looking at right. Now with respect to financials in Europe particularly given not just Brexit but what's now with the Italian budget. The Italian budget certainly. Rattled the European financial sector and again we view.
It more as an opportunity. Why. Because the prices of your. Financials just plummeted this year whereas their intrinsic value. Hasn't gone down at all in fact. Operating conditions are OK. For European financials. There are capital positions are good. Losses continue to decline they continue to slowly grow.