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International Equity Select
Q: Why do you have an overweight position in Europe?
A (Posted November 24, 2008): We are, and will continue to be, driven by our fundamental, bottom-up investment process, carefully considering each company’s competitive advantages, weaknesses, and relative valuation. To a certain extent, where a company’s headquarters are located and where a stock is listed are secondary considerations for us.
Owning a stock listed in the United Kingdom, for example, does not mean taking a position in favor of the U.K. economy per se. A company like Vodafone has just 15% of its assets and 8% of its subscribers in the United Kingdom. A significant portion of the sales of GlaxoSmithKline (approximately 50%) and Diageo (approximately 40%) are in U.S. dollars.
After a long period of outperformance by cyclical stocks, which reached record valuations, we are finding value in many European companies that conduct their business globally and that we believe have strong balance sheets and a sustainable capacity to generate cash, such as GlaxoSmithKline, HSBC, and Vodafone.
Although our overweight position in Europe is mainly a result of our stock selection process, several macro considerations are also in favor of our position. European investors, companies, and even governments have become more equity-friendly. While the United States has a budget deficit of 2.5% of GDP, and the U.S. government will likely have to assume even more debt to stabilize the financial system, the budgets of Germany (+1.1% of GDP), The Netherlands (0.7% of GDP), Belgium (-0.6% of GDP) and the overall Euro area (-0.9% of GDP), appear far healthier than in the United States. We believe this may not be good news for the dollar in the long term. Also, the U.S. consumer is already far more leveraged than, for example, his German counterpart, and in Germany there has been no doubling in house prices like in the United States.
The securities identified are not necessarily held by Lazard Asset Management for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any of the referenced securities were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the account’s portfolio or that securities sold have not been repurchased. The securities discussed may not represent the account’s entire portfolio.
Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the date indicated and are subject to change. Past performance is not a reliable indicator of future results.
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