While investors have been hyperfocused on macroeconomic factors in recent years, Oakmark’s David Herro says microeconomic reforms are crucial to the global economy and markets.

In his second-quarter letter, Herro cites things like labor market reform and changes to social security systems as keys for stimulating growth. “Despite today’s current challenges, I am extremely optimistic that the emerging world will propel medium- and long-term global growth,” he says. “However, true structural reform, especially in the slow-growth, developed markets of Europe and Japan, would greatly supplement the more erratic growth patterns of emerging markets.  Ultimately, we believe such policies would alleviate the ever pervasive macro fears and lead to an environment that would be extremely conducive to global equity markets.”

Herro says his firm is continuing to focus on fundamentals rather than macro factors. “We have consistently tried to use these periods of fear and uncertainty to take advantage of what we find are the low equity market valuations globally,” Herro writes. “Recall that the core of our investment philosophy is the notion that value is a function of the present value of all cash flow streams, not news headlines, which often have little or no impact on the long-term viability of cash flow streams.”