Defensive by nature, Peter A. Langerman, co-manager of the $1-billion Mutual Discovery 
, says that an element of caution is advisable in the current global environment.
"Have markets been stronger this year than we anticipated? We'd say yes. That's not totally surprising," says Langerman, president and CEO of Short Hills, N.J.-based Franklin Mutual Advisors LLC.
"We had a substantial bounce, in large part due to the LTRO (Long-term Refinancing Operations, devised by the European Central Bank) and the removal of liquidity and re-financing issues, at least in the near and medium term," says Langerman. "Meanwhile, we've also had reasonably good economic data in the U.S. that supports a modest recovery."
A bottom-up stock picker, Langerman is running about 6% cash, which is relatively low compared to several years ago when cash was over 20%. "People might think we believe there are some interesting companies out there. And we do," says Langerman, who shares duties with Philippe Brugère-Trélat, executive vice-president.
"Even companies that are based in Europe and have global operations are doing OK," says Langerman. "There is a modest recovery and balance sheets have been cleaned up. Operations are also in good shape. That's what we're buying: companies with good cash flows and valuations. We are comfortable they will sustain themselves even in a downturn."
One top holding in a 150-name fund is Wells Fargo & Co. WFC. The U.S. bank had its share of problems coming out of the 2008 financial crisis, but not to the same extent as its competitors.
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"It has a very good underlying business," says Langerman, noting that he has occasionally added to the position on weakness. "We felt that even though it has always traded at a premium to some of the other beaten-up national banks, it's still got an attractive price-to-book-value multiple."
Wells Fargo trades at 1.3 times book value, compared to JP Morgan Chase & Co. JPM which trades at 0.96 times book value. "Regardless if we have another pullback or a recovery, Wells Fargo is a high-quality name that would not only survive, but prosper in any kind of environment."
Another representative holding is Marathon Oil Corp. MRO, a mid-sized company that had upstream and downstream businesses until last year, when it spun off the latter.
"It's still one of the cheaper of the medium to large-sized exploration companies," says Langerman, noting that the stock is trading at 7.5 times current earnings. While the stock is flat in the year to date, Langerman is not discouraged. "It's nice if things work out every quarter, but that's not how they do it. Our time-frame is three to five years."
A native of New Haven, Connecticut, Langerman has had a varied career that began with Russian studies and shifted later into accountancy, law and money management. After earning a BA in 1977 at Yale University, he decided to become an accountant.
He went to New York University Graduate School of Business, where he earned an MSc in accounting and then joined Arthur Young & Co. After two years, Langerman switched gears and decided to pursue law. He earned a Juris Doctor at Stanford University in 1982.
Langerman was hired by Weil Gotshal & Manges, a New York firm that specialized in corporate bankruptcies and reorganizations. In 1986, he made another career switch when he became an analyst at Heine Securities Corp., the predecessor to Mutual Series. "It was my first taste of investing -- and it's the kind of investing that we still do."
Between 2002 and 2005, Langerman left Mutual to work as director of New Jersey's Division of Investment. Although he never thought he would return to Mutual, he re-joined the firm after receiving an offer by the Franklin Templeton organization.
In December 2009, after the departure of Anne Gudefin and Charles Lahr, Langerman and Brugère-Trélat took over the Morningstar 4-star rated Mutual Discovery. The fund, which is in the Global Equity category, is part of a group of Mutual Discovery funds that are sold in several countries and in aggregate amount to US$22 billion.
Langerman stresses that, despite personnel changes, the firm's investment approach is largely unchanged. "While there are differences in our funds, the underlying philosophy is a consistent one. It predated Anne and Chuck, and presumably will post-date me and Philippe, whenever that day will be."
At the same time, cognizant of the global macroeconomic challenges, Langerman is watchful of new investment opportunities. "We're not predicting a bullish scenario or a painfully bearish one. But there will be ups and downs and periods when panic rears its ugly head. You have to be prepared for that."
