Portfolio Manager Perspectives

Jeff Benjamin

Going global? Try U.S. stocks, says FPA Perennial’s Ende

Oct 11, 2010 @ 3:34 pm

By Jeff Benjamin

Investors looking for more exposure to global markets can increasingly look to U.S. stocks, according to Eric Ende, manager of the FPA Perennial Fund Ticker:(FPPFX).

In a concentrated portfolio of 30 U.S.-domiciled companies, 37% of sales last year came from foreign operations, Mr. Ende said. This compares with 20% in 2003.

“We’ve been putting increased emphasis on companies with worldwide franchises,” said Mr. Ende, who manages a total of $1 billion in the small- and mid-cap-core strategy at First Pacific Advisors LLC. The firm has a total of $13 billion under management.

“Our emphasis is fairly straightforward,” he said. “We want to own superior businesses that have higher returns on capital and relatively unleveraged balance sheets.”

One example is Varian Medical Systems Inc. Ticker:(VAR), which makes machines that provide cancer radiation treatments. Mr. Ende said the company is supported in part by increased spending on medical treatments in large developing nations like China and India.

Varian currently has 55% of the global market for radiation machines, as well as lots of cash on the balance sheet and no debt.

The strategy, which Mr. Ende has been managing since 1995, has an annual turnover rate of less than 20%, which means investors will need to be patient.

“Our strategy is very different from our benchmark [Russell 2500 Index],” he said. “This is for somebody who is comfortable with a concentrated portfolio.”

In terms of an outlook, Mr. Ende admits his stock-picking methodology doesn’t always have him focused on the broader market trends, but he is aware of the general level of investor uncertainty.

“The economy’s bounce has been a little disappointing,” he said. “We were spoiled by how cheap the market got a year and a half ago, and now there’s a bit of a psychological hurdle to overcome, but we have to keep reminding ourselves that valuations are still attractive.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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