THE global economy is growing faster than the U.S. economy, and yet many investors are understandably nervous about placing big bets on foreign stocks.
After all, lots of investors got badly burned in 1998 when the Asian economies unexpectedly blew up. When you add in the currency exchange rates, the lack of respect for shareholder rights in some countries and the inability to get solid information about overseas concerns, it’s no wonder that investors prefer to stick with made-in-America stocks.
But Tom Laming, the lead portfolio manager of the Buffalo USA Global fund, believes he’s found a unique way to take advantage of the global economic recovery without all the typical difficulties of owning foreign stocks.
“We are global in the sense that we have a requirement to own U.S.-based companies, but only those that record at a minimum 40 percent of their revenues from overseas,” Laming said.
It’s a strategy that’s paid off. So far this year, the fund is sitting on a year-to-date gain of 16.7 percent, even at a time when most major market averages in the U.S. are in negative territory.
What makes the performance even more amazing is that the fund keeps a whopping 40 percent of its assets in technology stocks, which have been among the hardest hit during the sell-off. The tech-packed Nasdaq composite index, for example, is down -4.8 percent for the year.
But the fund is no Johnny-come-lately. Its average annual return for the last five years is 25.4 percent, beating its category average of 15.1 percent. The long-term return proves that the fund was able to weather the international storms of 1998 without sinking.
Now Laming is positioning the fund’s assets to take advantage of what he believes will continue to be a global growth rate outpacing that of the U.S.
“We’re still very positive on the U.S. economy and the rest of the world,” he said. “Even if we have another rate increase [in the U.S.], that’s probably the last one, which will take some pressure off our fund. That would lead to a weaker dollar, and the companies we own like the weaker dollar.”
That’s because U.S. goods often seem too expensive to overseas buyers when the dollar is strong.
Laming is also readying the fund for the onset of technological advances across the globe. “The United States dominates technology businesses like networking equipment and semiconductor chips,” he said. “Both Intel and Microsoft – U.S. companies – are dominant because they are selling products the rest of the world wants, but foreign buyers don’t have a local option.”
The top holdings in the highly concentrated fund – only 40 holdings total with about 26.6 percent of the fund’s assets in its top-five holdings – include Applied Materials, Cisco and National Semiconductor.
“There are definitely non-tech holdings in the top ten,” said Laming. “We actually think it’s pretty widespread across different industries.” For example, the fund also owns Lear Corp., AIG, American Home Products, Bestfoods and Boeing.