Japan Begins to Emerge from Extended Slowdown, and Its Equities Rise: An Expert Portfolio Manager Discusses This and Other Investment Ideas in this Exclusive Interview

Wall Street Transcript

67 WALL STREET, New York - August 23, 2013 - The Wall Street Transcript has just published its International Investing and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Exposure to Emerging Markets - High-Quality Companies, Value Investing - Investing in Asia - Longer-Term Investing - Asia Pacific Investment Theses - Investing in China - Equity Investing Strategies - China's Domestic Markets

Companies include: Siemens AG (SI) and many more.

In the following excerpt from the International Investing and Other Strategies Report, an expert portfolio manager discusses his portfolio-construction methodology and his investment philosophy:

TWST: You mentioned that when you are researching, you look for a catalyst. Would you give us some examples of catalysts?

Mr. Harrell: There are as many catalysts as there are companies. A catalyst is anything that might come along and unlock value. Corporate actions, such as the sale of a business or spin-off of a noncore business, are two examples. We recently saw Siemens (SI) spin-off Osram, which is one of the largest manufacturers of light bulbs and light fixtures in the world. It was a gigantic business within this industrial conglomerate. With a large company like Siemens you get a conglomerate discount, so value would be unlocked by disconnecting the lighting business and allowing investors to value it separately. That is one type of catalyst. There are many others. Change in management is often one; sometimes it's the restructuring of a poorly performing business that can unlock value.

Another one that we think is interesting right now is happening in Japan. We pay a lot of attention to Japan; it is a large market, and we travel to Japan regularly. Japan has been a place where there were a lot of cheap stocks, and people objectively agreed they were at low valuation levels. The problem was, there really wasn't much happening there to unlock that value. There were many issues that kept the market in the doldrums for the better part of two decades. One of them was that the general attitude towards building shareholder value wasn't a priority for many Japanese companies.

We think this is beginning to change. We have detected real signs that Japanese companies are beginning to pay more attention to shareholders and are taking concrete actions to improve shareholder value. That's a huge positive. It could be a catalyst that would influence many Japanese companies and could unlock a lot of value there. So we're looking at that. I said we don't really do thematic investing, but sometimes these themes emerge as part of our bottom-up work. That is interesting to us, because it could be a powerful catalyst.

What has caused the Japanese market to go up 70% since last November is Abenomics, which is just very aggressive monetary and fiscal policies, and some structural reforms. The success of those sorts of policies are hard to predict and, to me, they are a little bit like a sugar high. So stocks have responded to an injection of liquidity through quantitative easing, and we wonder about the sustainability of that sort of thing. A change in attitude toward shareholder value is a much more...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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