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'The best investments — anywhere,' according to top asset managers

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CHICAGO - Investors looking for "the best investments — anywhere" should examine emerging markets, selected sectors in Europe and the pharmaceutical industry, according to a panel of top asset managers at Morningstar's annual investment conference.

Emerging markets are an attractive "long-term secular growth story," according to Charles Pohl, chief investment officer of Dodge & Cox. Amit Wadhwaney, portfolio manager and co-founding partner at Moerus Capital Management agreed, citing the high number of "severely undervalued companies" in various emerging market countries.

For example, despite political and economic turmoil, Moerus has invested in companies based in Turkey, Columbia and Brazil, Wadhwaney said. "The idea is to buy something that looks terrible" but has extensive upside potential, he explained.

The much maligned Italian banks have also been a favored investment for Moerus.

The bad publicity surrounding the banks have scared off many investors, but their "wild excesses" have been curbed, Wadhwaney said. As a result, Italian banks are now an "extraordinary opportunity" for investors, he maintained.
Selected European banks are also in Dodge & Cox's portfolio, Pohl said.

Many European banks have benefitted from restructuring and valuations are still "quite cheap," he said. "The key thing is that a lot of legacy problems have been dealt with and bad debt on the balance sheet has been taken care of."

Pohl did caution however, that there are "a lot of [European] companies we don't want to get anywhere near."

Noriko Chen, equity portfolio manager of Capital Group, was also bullish on Europe.

Capital's funds have been investing in European consumer staples, real estate and industrials, Chen said. Profits have picked up and investors are seeing "improvement in returns," she said.

Pharmaceutical stocks are benefitting from long-term demographics, especially in developed countries, according to Pohl. "The older population is going to demand more health care," he said.

Pharmaceutical companies are also poised to benefit from strong growth in emerging markets as more consumers gain access to middle class incomes, Pohl noted. "We're seeing rapidly growing revenue streams" from pharmaceutical sales in emerging market countries," he said.

Pohl and Wadhwaney both warned that political pressure from an aging population could result in eventual government price regulations on drug prices and products. Such a move is "high likely" to happen in the future, Wadhwaney said.

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