Mason Investment Advisory Services hosted T. Rowe Price (T. Rowe) for a discussion of recent trends and promising opportunities in international markets, with an emphasis on value investing.
The session is the latest in a series of Mason educational events designed to highlight critical determinants in the construction and monitoring of client portfolios.
- Rowe Price manages over $1.3 trillion in investor assets and has been a stalwart in international investing for over 50 years.
Our special guest for the session was Colin McQueen, portfolio manager for T. Rowe’s flagship, $10 billion International Value Equity Fund.
Colin opened the session with a discussion of macro conditions in the post-pandemic era that would act as tailwinds for international investors, including higher trend inflation, rate normalization, and higher capital spending.
With these economic shifts as a backdrop, he supported his optimistic view of foreign markets by pointing out the dramatic disparity in relative valuations of U.S. versus international equities.
For value investors, the data suggests that we may be reaching a watershed moment for finding bargains in international stocks.
Another argument raised for increasing overseas exposure now is diversification. U.S. markets have become highly concentrated in a relatively few stocks.
In fact, this year over 30% of the S&P 500 cap weighting was in the 10 largest stocks. By contrast, the ten leaders in the MSCI EAFE accounted for just 15% of the index.
In response to a question on T. Rowe’s investment approach, Colin emphatically pointed to the generation of free cash flows as the most important factor in stock selection.
As a contrarian, he said he looks for companies that have strong fundamentals but are out of favor for exogenous reasons. His average holding period is three-plus years, but his sell-discipline is driven by whether or when companies reached their target valuations.
The discussion included mention of several European and Asian companies across industry sectors that were currently at attractive valuations.
Questions arose about the availability of opportunities in China, given the perceived risk from China-U.S. decoupling.
Colin responded that the International Value Equity Fund currently has a higher-than-normal 4.5% of its portfolio in China, recognizing that some stock prices there appear to be even better bargains, having been driven down by macro concerns about China’s economy and geo-political situation.
By the end of the lively 90-minute session, participants generally agreed that the discussion improved their understanding of international markets and confirmed the view that allocations to overseas investments continue to be an important diversifier in a balanced long-term portfolio.
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