From about 1979 to 1983 Cliff Hoover, the newly appointed portfolio manager of the Dreman International Value Fund, worked on an offshore drilling rig in the Gulf of Mexico for a company called Otis Engineering.
Part of his job was to advise engineers on how to set drilling equipment at the bottom of a well, so the company could eventually collect the oil. That experience comes close to giving Hoover an insider’s perspective on British Petroleum’s position in the market and its worth as a stock.
Presently, Hoover values BP at $84 a share, but public outcry over the spill has kept its stock price at around $30. Despite the controversy surrounding BP, and the attendant politics, Hoover says it could generate $70 billion in cashflow from its operations in the next several years. He says it has enough to support the $20 billion claims fund to help those affected by the spill, and did not necessarily have to suspend dividends. Beyond that, the relief well being constructed to capture the oil gushing into the Gulf waters is ahead of schedule, he said.
For those reasons, BP remains an attractive holding for the Dreman portfolio, and conforms to its two-part philosophy of buying international companies with solid long-term growth potential, even if they are under short-term pressure, Hoover said in a market outlook call that Dreman hosted on Tuesday.
He also likes BP because as an international operator, it will be part of the shifting of global economic power from its U.S. axis to entities overseas. Eventually, Hoover says, the currency markets will regard the U.S. dollar as a basket currency along with units from Europe, Canada and Australia, instead of the lofty reserve currency it is now. Growth in equities will come from companies based in developed markets overseas and emerging markets.
“This is not an economic miracle in the developing world,” Hoover said. “Those countries put in the right industrial policies over the last 15 years, and now you’re seeing the result of that. Whether we like it or not, we cannot get away from the growth profiles of the developing world.”
These changes also mean that investors are in for more volatility for the next several years, which brings in the second component of Hoover’s investment philosophy: behavioral finance. He likes to take a contrarian’s point of view to find stocks that are mispriced as a result of panic or over exuberance in the markets.
Hoover heads up a team of six portfolio managers that took over the fund from Deutsche Bank’s DWS Investments last Friday. Deutsche appointed Dreman as the subadvisor on the fund after it experienced disappointing returns under the previous team. The fund will hold about 50 companies, with each accounting for about 2% of the portfolio. Anticipating greater input from the international markets, the Dreman International Value Fund has 60% of its holdings from European countries; 12% to 13% from emerging markets countries; about four holdings from the Brazil, Russia, India and China; and just one holding from Japan. In terms of commercial sectors, the fund has 25% of its holdings in global banks, and also favors materials, energy and industrials, Hoover said.
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