Top fund manager David Herro says he’s not letting macroeconomic events change his investment approach.
“For some time now, we have been quite heavily exposed to European equities,” Herro writes in his second quarter letter to Oakmark shareholders. “There is nothing special about Europe that we like or dislike; we are simply bottom-up investors who focus on the business fundamentals of the companies in which we are invested, as opposed to the postal code of their corporate headquarters. What really matters to us are the durability, velocity and quality of a particular company’s free cash flow stream over time.”
“Many market watchers are frequently distracted by macro, geopolitical and regulatory events that often influence sentiment or allude to a more ‘cyclical’ impact, but do not structurally affect a company’s future stream of free cash,” Herro continues. “As such, these events often do not have long-term fundamental impacts on business value. For example, Russia’s annexation of Crimea certainly has unsettled and weakened European markets, but it has not rattled our view on our holdings of European-based companies.”
Herro also talks about how a “value gap” and structural reforms have him keen on Japanese stocks. And he says that overall, stocks look attractive. “Though valuations aren’t as acutely cheap as in the past few years, we believe they are attractively valued, especially when one considers that the global corporate earnings cycle seems to have bottomed,” he said.