Lisa F. Myers, a bottom-up value investor and manager of the $1.7-billion Templeton Growth, believes that valuations still look compelling, especially in Europe.
"While valuations in the U.S. are significantly higher than in Europe, I'd say that the economic fundamentals in the U.S. are on a much better footing," says Myers, executive vice-president with Nassau, Bahamas-based Templeton Global Advisors Ltd. "The expectations for earnings growth are starting to fulfill some of the re-ratings we have seen. But that's happened over the last year and the strength of the U.S. market has caused us to look elsewhere for better values."
In particular, Myers has bought European stocks, which account for about 45% of the global equity fund, versus 29% in the benchmark MSCI World Index. In contrast, there is 40.5% in North America, versus 57.6% in the index.
Myers focused on European companies that had global operations, which were not recognized in their valuations. "Yes, today, valuations are not where they were when we screamed about 'a generational opportunity.' But they still look good. There is a significant amount of catch-up for European firms, versus where U.S. companies' earnings have recovered. There is still plenty of opportunity."
The European weighting is one reason for the fund's outperformance. For the 12 months ended Feb. 28, the 4-star rated fund returned 34.6%, versus 24% for the median fund in the Global Equity category. On a three-year and five-year basis, the fund had annualized returns of 15% and 16.1%, respectively, compared to 11% and 14.6% for the median fund. Myers, who assumed the portfolio in November 2006, is only the fifth manager of the fund, which was launched almost 60 years ago.
Representative of the 90-name fund was the positioning in European financials that were slammed by the financial crisis. "We were buying into Europe long before the market started to see that region bottoming. But we stuck our toes into the water with U.S. financials sooner than the Europeans, because we got comfortable once the recapitalization of those financials occurred early on in the financial crisis," says Myers, who is also the equity manager of Templeton Global Balanced.
"Europe was a few steps behind but we rolled up our sleeves as well because we thought the phenomenon would not be much different," adds Myers. "Maybe they would not be recapitalized in the same way as the U.S. government had participated, but they, too, would have to get their houses in order. We spent a lot of time looking at business models, and where there were opportunities. Some of them were trading at under 0.50 times price-to-book, which suggested that returns on equity would be anemic."
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That's what led to positions in out-of-favour banks such as BNP Paribas, Credit Suisse Group and UniCredit Group SpA. Thanks in part to internal corporate reforms as well as policy changes at the European Central Bank in 2011, the stocks turned around, contributing to the fund's outperformance.
This, says Myers, is emblematic of the Templeton philosophy. "We look out five years, build our own models and do our own research. We knew that these banks would not be an exciting place to be, but their valuations did not reflect any kind of recovery of the European financial system or the banks themselves."
A native of Englewood, N.J., Myers is a lawyer by training who entered the industry following a stint in corporate and real estate law. After graduating with a BA from the University of Pennsylvania in 1989, she completed a J.D. (law degree) at Georgetown University in 1992.
Myers spent four years at the New York law firm of Wilkie, Farr & Gallagher, where she specialized in real-estate law and initial public offerings.
In 1996, Myers moved to Nassau and was offered an internship by Mark Holowesko, who managed Templeton Growth. Myers spent about five years as an analyst, starting with real estate and later Italian stocks. "We made a lot of money on some of my recommendations on luxury-products firms. They asked if I wanted to cover retail."
Myers managed several institutional accounts and worked closely with Jeff Everett, then chief investment officer. She also sat on the team for the Templeton World Fund and Templeton Growth. In 2006, Myers assumed the latter portfolio after its then-manager George Morgan returned to Canada.
While many stock recommendations come from a network of global analysts, Myers continues to specialize in retail stocks. And she argues that there is still value in names such as Kingfisher PLC, a leading UK home-improvement retailer and the largest fund holding, at 2.5%. It was acquired in the same way as Home Depot Inc. HD, which had been depressed when Templeton bought the stock and then benefitted from a major corporate restructuring and turnaround of the U.S. housing sector. Templeton has since exited most of that position.
"Kingfisher is a company that still trades at a significant discount to Home Depot," says Myers, adding that Kingfisher has net cash on its balance sheet and pays a 3% dividend. "It has implemented much of the same internal restructuring, and 18 months after Home Depot started seeing a tailwind, we're seeing a little bit of light in the UK and European markets. As those economies recover, we should start to see that reflected in earnings."
