Street Wise: Fund manager sees global ‘Ice Age’ thawing out

After three years of what he calls the “Ice Age” for global equity markets, Remi Browne is hopeful, if not downright optimistic, about 2003.

Mr. Browne, the manager of the $60 million Standish International Equity Fund (SDIEX), sees new opportunities ahead for his core international strategy.

As chief investment officer in charge of international equities at Boston-based Standish Mellon Asset Management LLC, Mr. Browne also oversees $600 million in separate-account assets.

“There are signs of hope,” he says, citing the latest industrial production figures out of the core European nations: France, Germany and Italy.

“Valuations in many parts of Europe are starting to look more attractive,” Mr. Browne says.

In Japan, where the fund has a 20% total allocation, he is encouraged by a recent $1.3 billion investment The Goldman Sachs Group Inc. in New York made in Japan’s second largest bank, Tokyo-based Sumitomo Mitsui Financial Group Inc.

Goldman’s purchase of Sumitomo preferred shares, which will help the Japanese bank to expedite bad-loan write-offs, represents a “significant show of confidence in the Japanese economy,” Mr. Browne says.

“To see Goldman getting into the Japanese market with this kind of commitment is a major sign of hope for both the market and the economy,” he says.

The fund’s sector weightings tend to mirror the Morgan Stanley Capital International Europe, Australasia and Far East Index, with a 50% exposure to continental Europe, 25% in the United Kingdom, 20% in Japan and 5% in the rest of Asia.

“We like to keep the weightings close to our benchmark and let the stock picks drive performance,” Mr. Browne says.

In 2002, the fund’s share price fell by 6.5%, while the EAFE index dropped by 16%. Year-to-date through last Wednesday, the fund was down 4%, the index 4.9%.

The fund, which has a four-star rating from Morningstar Inc. in Chicago, outperformed its benchmark EAFE by nearly 10% during each of the past three years.

With a portfolio of more than 150 stocks, Mr. Browne says that much of the relative performance comes from “winning a lot of little battles.”

Among his latest conquests is Hong Kong-based oil-production company China National Offshore Oil Co., which trades as American depositary receipts under the symbol CEO.

That ADR is in some respects a hedge against a U.S. war in the Persian Gulf, because China National has zero exposure to the region’s oil-production industry.

In addition to expanding its production by 20% a year – which makes it the world’s fastest-growing oil-production operation – the company also has an exploratory interest in any local drilling off the coast of China.

Trading at an attractive 10 times earnings, ADRs of China National closed last Thursday at $25.90 a share, for a 12-month gain of 35.2%.

The Standard & Poor’s 500 stock index was down 28.8% over the same period.

Another growth story Mr. Browne likes is Nissan Motor Co. Ltd. (ADR: NSANY), which trades in the same value range of 10 times earnings.

The Japanese automaker was almost belly-up in the late 1990s before Renault SA of France stepped in to acquire a 44% stake in the company.

“Nissan is a pretty spectacular growth story,” Mr. Browne says. “Since Renault came in, they have cut costs, introduced new models and increased revenues.”

As part of the joint venture, Nissan also has a 15% stake in Renault, minus the voting rights.

Nissan’s ADRs closed at $15.14 a share last Thursday. The shares had gained 41.5% over the 12 months through that day.

Mr. Browne’s fund, originally designed with institutional investors in mind, is marketed to individual investors through financial advisers for a minimum investment of $10,000.

Questions, observations, stock tips? E-mail Jeff Benjamin at [email protected]