CNBC’s “Squawk on the Street” is joined on the phone by David G. Herro, Oakmark Funds portfolio manager, to talk about the market volatility and why he still sees an investment opportunity.
H/T Dataroma
David G. Herro: Market Volatility Has Provided A Lot Of Opportunity
Q3 hedge fund letters, conference, scoops etc
Transcript
David, what are you doing amid all of this volatility right now?
Well certainly especially in February this volatility has really provided a lot of opportunity. As you know I manage international funds and global funds and I think specifically when you look to Europe this is a place that has really provided extremely attractive valuations due to dismal share price movement.
I mean I'm looking at my screen here Euro stocks 15 U.S. dollar terms is down over 20 percent.
Most of the European stock markets are down over 20 percent and there are certain sectors the financials and industrials in Europe in particular that have been clobbered. I mean they're selling anywhere and the financials are selling well below book value in mid single digit piece and in the same thing with the industrials.
So this is one area in the global equity markets. That to me is just screaming value and that today was a perfect indication theU.S. market closes up almost 5 percent yesterday in Europe opens down this morning. I mean it's just been a dismal market which looks very poor in the rearview mirror but looking forward to these kind of valuations to me are unsustainable.
So you're talking European stocks specifically financials and industrials. Even with all the policy uncertainty there and the fact that the economy appears to be taking a leg lower at a time where the ECB is looking to end its stimulus program.
Yeah this is exactly what's dragged on the share prices of these sectors is that this is top down macro stuff which has provided a very high degree of feel bad factor. But the truth is that despite the feel bad factor companies earnings are doing just fine. Now the global GDP this year is going to be three and half three six three point seven percent. And in this type of environment companies can earn decent profits. So yes the big picture looks a little spooky and all the stuff with Italy versus the EU and brags that all these things weigh on share prices but this is exactly what provides opportunity for the investor. We are investing in businesses which generate cash for streams which have healthy cash streams and because of that top down negativity.
We have this opportunity and this is this is where the dichotomy is all this political blur. You know rarely reflects the long term value destruction and this is where the opportunity exists.
David there's been a lot of talk about sort of institutional ownership oil where open interest is and right now. JPM today says that there are signs of capitulation at least on that front among institutional holdings. You look at some of the funds outflows you feel like we're getting close to something.
You know we've experienced from outflows in the last quarter of this year after having a very strong inflow period end of last year the beginning of this year. And I have to say my experience of running mutual funds there tends to be a very inverse correlation between that outflows pick up and when the bottom of the market when the future performances. So you know if the past is any indication of the future we're getting close to some sort of bottom here.
As you know we've seen outflows at the end of this year and again it's exactly when prices have been the weakest in the retail investor.
And even some of the managers see whether some of it be tax related selling or what have you. You tend to have this type of behavior but when you see this kind of price dislocation what I mean.
