Retirement Watch Looks Overseas for Growth and Income

08/15/2019 5:00 am EST

Focus: GLOBAL

Robert Carlson

Editor, Retirement Watch

Stocks outside the United States are probably are poised to do better than U.S. stocks; currently, non-U.S. stocks appear to have lower valuations, suggests fund expert Bob Carlson, editor of Retirement Watch.

As central banks loosen monetary policy, economies outside the United States are more likely to benefit and that should help stocks of companies based outside of America. We own a collection of growing companies through WCM Focused International Growth (WCMRX).

As its name says, the fund focuses on a few stocks of what it calls great companies that have delivered solid growth and that management believes are able to sustain that growth. The fund recently owned 33 stocks and its 10 largest positions were 40% of the fund.

To be included in the fund, a company must have little or no debt and a high return on equity. The fund also identified key international trends and looks for companies that benefit from those trends, such as increased used of technology and the growing middle class.

A company also should have quality management that instills a culture of long-term growth. About 28% of the fund is in technology companies. Other key sectors are health care and industrials.

We also aim to benefit from a resurgence in emerging markets, especially in Asia, through T. Rowe Price New Asia (PRASX).

Emerging markets went through a bear market in 2018 when U.S. stocks were rising, so they have lower valuations. They should benefit from easier global monetary policy. Markets in China and Asia also have been buffeted by China’s trade conflicts with the United States.

I think the markets overreacted to the trade conflicts. Particular Chinese companies have been hurt and will continue to be if the conflicts continue. But China’s economy is more domestically oriented than many people realize.

China’s authorities have stimulus policies in place that should keep the economy growing. PRASX follows T. Rowe Price’s longterm policy of focusing on a relatively few stocks of growing companies that are selling at reasonable prices.

The fund recently owned about 80 stocks and about 39% of the fund was in the 10 largest positions. Top holdings were Tencent, Alibaba, Samsung, AIA Group and Taiwan Semiconductor. Key industries in the fund were technology, financial services and consumer cyclical.

We also are invested in emerging markets through DoubleLine Emerging Markets Fixed Income (DBLEX). The fund is up 2.27% in the last four weeks and 10.16% for the year to date. The yield is 5.15%.

DBLEX doesn’t try to follow an index. The fund’s priority is preservation of principal, so it won’t reach for yield by purchasing risky bonds.

The fund’s managers survey the emerging economies and determine which they want to avoid and which to invest in. The fund recently was 75% invested in corporate bonds and 18% in quasi-sovereign bonds. The rest of the fund was in sovereign bonds.

DBLEX currently isn’t taking currency risk. It owns only bonds denominated in U.S. dollars. The top countries represented in the fund recently were Brazil, India, Mexico, Chile and Colombia. Top industries were banking, oil & gas, utilities, telecommunications and transportation.

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