Peter O'Reilly believes the U.S. economy will surprise on the upside as it emerges stronger than many people expect.
"In the third quarter of last year, most people were talking about a 2% recovery this year," says O'Reilly, manager of the Morningstar 5-star ratedInvestors Global and vice-president of Dublin-based I.G. International Investment Management Ltd. "The consensus is now closer to 3%."
O'Reilly has been positive on the U.S. since late 2008, when he raised the consumer- sector weighting to about 17% of the fund. The total U.S. exposure is around 38%, the highest it has been in several years. That represents a major shift. "Our bets were geared to growth in developing economies in India and China," says O'Reilly, adding that he preferred to get exposure through global resource firms such as BHP Billiton Ltd. BHP.
Government action to bail out banks and introduce stimulus programs convinced O'Reilly that the worst was behind us, as least as far as the stock market was concerned, and that it was time to switch tracks.
"Taking our three-year holding view, we believed that while we cannot get the exact minute right, we could buy in today with the comfort that we were getting good deals over the longer term." All his metrics, including return on equity, price-to-book-value and cash flow, were sending positive signals. "For the first in time in years, we started finding real bargains."
O'Reilly bought names such as the luxury-goods retailer Coach Inc. COH. Travelling around Asia, he noticed how Coach had made major inroads in that market. "I was impressed how under-represented it was in the U.S., especially on the West Coast."
As a value-oriented investor, O'Reilly believed the stock was fully priced. The market correction changed his view. "Suddenly you pull up these names on your screen," he says, noting that he liked management and the firm's cash flow. "You get an opportunity to buy them, and that's great."
A 41-year-old native of Dublin, O'Reilly is a 19-year industry veteran. After graduating in 1991 from University College, with an MA degree in economics, he got his first job as a trainee analyst in the fund management division of AIB Investment Management, a unit of Allied Irish Bank.
In 1992, O'Reilly joined Global Asset Management and helped set up its Dublin operations. Two years later, he moved to London where he worked as an analyst in the international equity department for Royal & Sun Alliance Asset Management. Before long, he managed balanced and international equity funds.
At Royal & Sun Alliance, O'Reilly got more involved in strategy and asset allocation and less in stock-picking. In May 2000, he grabbed an opportunity to manage money for Investors Group and also return to his roots in Dublin. "It ticked all the boxes. Stock-picking is the way I can add value. You get a different perspective of the world. And if you want to understand economics, you talk to the guys out there, doing things."
Besides running the global equity fund, O'Reilly also manages or co-managesInvestors Global Financial Services, andInvestors Global Dividend. In total, he is responsible for about $3 billion.
Investors Global has generally been a strong performer over the past decade. For the 12 months ended April 30, the fund returned 18.8%, placing it in the second quartile in the Global Equity category. Better still, over the three-, five-, and 10-year periods it has performed in the top quartile of its peer group.
O'Reilly tends to have about 70 to 75 names in the fund. Single positions are limited to about 3.5%. Turnover was relatively low, at 18.7% for the six months ended Sept. 30, 2009.
While some observers have said that the market rebound in the past year has been excessive, O'Reilly disagrees. "A lot of people will say the whole thing is running on stimulus and once it's removed, the whole thing will fall over. My view is that we will see a better than expected recovery, particularly from the U.S."
That is why he resumed interest in companies such as News Corp. Ltd. NWSA, the global media giant that he had previously owned. "It has a unique set of assets and was trading at depressed multiples because advertising revenues had fallen off a cliff."
Moreover, equities look far more attractive than bonds compared to 2000, when O'Reilly began running Investors Global. "Back then, bonds looked a little more attractive and yields were coming down. Governments had surpluses, so there weren't many (bonds) around," recalls O'Reilly. "Now, there's one thing you can be sure of: there won't be a shortage of government bonds."
