WCM: A Focused Global Approach

07/26/2016 10:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

Many European stocks are selling with good margins of safety – they returned less than 3% annually over five years while the S&P 500 is up over 60%, observes Bob Carlson, editor of Retirement Watch.

However, there are many strong global companies in Europe with prices that don’t reflect their recent and likely future growth.

I recommend buying WCM Focused International Growth (WCMRX). It is part of a small, employee-owned investment firm based in Laguna Beach, California.

The fund buys and holds stocks of a small number of companies that meet its definition of great businesses. Those are businesses with superior growth prospects, high returns on invested capital and low or no debt.

Foremost among its criteria is that a company must have competitive advantages, or moats, to make long-term growth likely.

The advantages can include economies of scale, legal or regulatory protection, high switching costs for customers, and the like. The fund also requires tailwinds that help a company’s growth.

The major tailwinds it identifies today are changes in demographics, increased outsourcing, the growing global middle class and the proliferation of technology.

Holdings of the fund primarily are large multinational companies in the technology, consumer discretionary, consumer staples and health care sectors of the markets.

The fund is global; it doesn’t focus strictly on European companies. I’m recommending this fund because I also want to be able to profit from Japan’s efforts to increase its growth.

Plus, the diversification gives us a hedge if Europe’s recovery efforts falter. The fund recently was 50% invested in Europe, 21% in the Americas and about 28% in Asia, with more than 9% of that in Japan.

It is a concentrated fund. It recently owned only 32 stocks with the top 10 holdings making up 42% of the portfolio. It doesn’t hedge the currency risk.

The minimum initial investment is $1,000, and the fund is available through most major discount brokers and no-transaction-fee programs.

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By Bob Carlson, Editor of Retirement Watch

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