You might think a portfolio dominated by companies based in the U.S. and Europe would make its manager nervous. Yet David Winters, skipper of the $1.6 billion Wintergreen Fund, sees tremendous opportunities.

A deep value investor loves a bargain, and they have been plentiful recently. "We view this very difficult period as creating a wonderful long-term opportunity for the patient investor," Winters says.

The markets were quite fragile over the summer, with stocks plunging worldwide. Meanwhile, investors flocked to the relative safety of bonds, with Morningstar's U.S. government bond index rising.



The latest crises do reflect the deep economic troubles many countries face. But Winters believes many investors aren't being rational.

"A number of the companies that we're invested in have done really well during this period of time, yet their stock prices don't reflect those good results," he says. It doesn't matter where a company is based, he argues, as long as it scours the globe for profits. Rather than bemoan the headlines, Winters has been shopping. He keeps a sizable cash cushion of about 12% on hand for just such circumstances. In early August, he was adding to his favorite names, buying them off the discount rack.

Against-the-grain thinking has always been a hallmark of Winters' style, something he honed under the mentorship of Michael Price, head of Mutual Series, the famed deep value shop founded by Max Heine. When the firm was sold to Franklin Resources and Price departed, Winters was tapped to run the shop's flagship Mutual Shares fund.

He left in 2005 to create his own firm, Wintergreen Advisers. Since then, Winters' has beaten most rivals. For the three years ended Sept. 6, Wintergreen is up 4.7% a year annualized, beating 92% of funds in the world stock category, according to Morningstar. Over five years, the fund is up 5.5% a year annualized, besting 95% of its peers.

To be sure, Winters is just as suspicious of the economic climate in Europe and the U.S. as anyone. "We feel that the greatest opportunities in the world continue to be in emerging markets, not the developed, debt-laden markets," he says.

His biggest bets are on the changing spending habits of newly middle-class consumers in places like China and Africa. Luxury brands are a theme he's played in the portfolio for years because he believes that many of these companies are good at finding customers willing to pay up for these goods.

"They're great businesses," Winters says of luxury goods. "I think it's a basic, fundamental, human desire to look attractive."

One such holding is Compagnie Financière Richemont, the Swiss-based owner of the Cartier, Piaget and Montblanc brands, among others. "They have expanded their presence around the world into areas where wealth is increasing," he says.

Through April, sales rose 35% over the prior 12-month period. Excluding Japan, Asia again accounted for the company's fastest-growing market. Nonetheless, Richemont's stock price was down 3.4% in 2011 through Sept. 6 due to the worldwide sell-off.

Another favorite is Swiss watchmaker Swatch. "They can't sell the watches fast enough," Winters enthuses about the firm's sales figures for the first half of 2011. Revenues rose 24% from the year prior during the period.

As with other Swiss firms, Swatch faces currency headwinds as the strong Swiss franc - one of the few strengthening currencies in the world - dampen profits when converted into the local currency. Swatch was up 2.6% in 2011 through Sept. 6.



In addition to luxury brands, Winters looks for other companies that can withstand tough economic times. Case in point is tobacco. While smoking has steadily decreased in the U.S. and Europe, it's still popular in many parts of the world. Even recessions don't stop smokers from lighting up.

"We are convinced we live in a world of currency debasement," Winters says. "The cost of living is going up around the world, so we're interested in businesses that can produce products that people will buy with enthusiasm."

Among the names that fall into this group is British-based Imperial Tobacco Group. Imperial can play two opposite themes to great advantage. In the developed markets, the firm is able to capture customers trading down to discount brands and loose tobacco. But in Africa, Asia-Pacific and Eastern Europe, its super-premium Davidoff brand is a way for smokers to trade up.

"We think there's tremendous possibility for consolidation in this industry," Winters says. "And there's a lot of pricing power in tobacco." Imperial raised prices earlier this year.

Imperial has another carrot to dangle in front of investors. It plans to increase the dividend payout ratio to 50% of adjusted earning, up from 47%. The stock has a dividend yield of 4.6%, which is set to rise to 5.2% next year. Shares were up 11.8% this year through Sept. 6.

Likewise food company Nestlé, another Swiss name, is a brand that Winters believes can continue to sell its products no matter what befalls major world economies. "I may not know where the economy is headed, but there's a high probability that kids will continue to eat chocolate bars," he says. Through Sept. 6, shares were up 9.1%.

As markets sell off, Winters has used the opportunity to rearrange his portfolio. For example, he trimmed the fund's stake in Berkshire Hathaway. Winters is concerned that Berkshire's $174 billion market cap leaves little upside for investors. He also fears that when Buffett and his no. 2, Charlie Munger, eventually leave, the transition may be a bit rough.

Instead, Winters prefers Canadian-based Fairfax Financial Holdings, which he says has a similar business profile to Berkshire, but is smaller. "It's an insurance company with an investment arm," he says. "But it's only got an $8 billion market cap." Berkshire Hathaway's shares were down 8.9% this year through Sept. 6, while Fairfax's were up 0.9%.



Deep value investing isn't limited to stock investing. Sometimes, Winters goes to great lengths to unlock value by becoming a shareholder activist.

Wintergreen is embroiled in a battle with Consolidated-Tomoka Land, a Daytona Beach, Fla.-based real estate firm that Winters believes lacks a long-term strategy. Winters contends that the company sold off too much land at bargain prices over the last few years. Instead, he would like to see the firm develop those parcels to greater profit.

So Wintergreen, which owns 27% of Consolidated-Tomoka's outstanding shares, called for the resignation of the firm's CEO, Bill McMunn. A new chief executive, John Albright, began Aug. 1, and McMunn will not seek reelection to the board of directors.

Winters thought the fight was worthwhile because Consolidated-Tomoka's land assets - some of the largest undeveloped parcels on the East Coast - can be turned into significant profits. "The price we're paying for the land is very low," he says. "We believe that the real estate market will recover eventually and this will be a great investment." On Sept. 6, the shares were off 6.4% for the year. FP


Ilana Polyak is a New York journalist who's written for The New York Times, Money and Kiplinger's. She contributes regularly to Financial Planning.

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