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Combing the Continent

This International Fund's Search for Value Has It Focusing on Europe

June 23, 1998|RUSS WILES | Russ Wiles is a mutual fund writer for The Times

Bankers Trust might not yet be a household name in mutual funds, but the company's International Equity Fund has a record that's worth writing home about. The fund, which made its debut in August 1992, ranks among the top 2% of foreign-stock funds over the last five years with an average annualized gain of 20.36%.

Lead managers Michael Levy and Robert Reiner seek out undervalued stocks of growth companies based in developed foreign economies, especially those of Western Europe. The fund has 80% of its assets in Europe, with a particularly high 26% stake in France. Less than 10% of the fund's assets are in emerging markets. Co-manager Julie Wang, who grew up in Taiwan, has responsibility for this slice of the portfolio.

Levy, now 50, joined New York-based Bankers Trust in 1993 after working as a money manager at Oppenheimer & Co. Reiner joined Bankers Trust in 1994 after stints at Standard & Poor's, Sanford Bernstein and Scudder, Stevens & Clark. Wang, 33, joined the firm in 1994 after earning an MBA from the Wharton School at the University of Pennsylvania. All told, the team manages $4.5 billion in assets, including the International Equity Fund.

All three managers recently talked to Russ Wiles, a mutual fund writer for The Times.


Times: Describe your basic strategy.

Reiner: Our approach is "growth at a reasonable price," a philosophy that brings together both value and growth aspects. A lot of pure value investors buy cheap stocks without really knowing what will make them rise. Also, many growth investors buy stocks that have increased earnings at an above-average rate, without considering what will allow that to continue. We look for catalysts in both areas.

Times: Are you taking a bottom-up approach, in which you focus on individual stock research, or a top-down strategy, based on broad economic and market trends?

Levy: A combination of the two, but dominated by the bottom-up approach. About 70% of our time involves researching companies.

Times: Where do you weigh in regarding emerging versus developed markets?

Levy: We view the fund as a diversified international core holding for investors. As such, we tend to be a bit conservative in our investments, restricting our holdings to no more than 15% in emerging markets. Right now, we're even lower, around 4%. But that's partly because Portugal, which represents about 6% of the portfolio, recently was reclassified as a developed market. In general, we're not enthusiastic about opportunities in emerging markets.

Times: That must reflect a pessimistic view on Asia.

Levy: It's the Scarlet "A." We gradually sold many Asian stocks last year because we couldn't justify the prices at which they were trading. We reduced what at the beginning of the year was a 20% position in the Pacific region, excluding Japan, to 10% by the fall. So we lost money like other funds, but not much. Our overall exposure is much lower now. We think Asia will need years--not months--to work through its problems. There are so many problems that this will be a "U-shaped" recovery, not a "V-shaped" one. And the base of the "U" could be quite long.

Reiner: A lot of people got faked out earlier this year, in January and February, when Asian stocks made a nice upward move. Some markets gained 30% to 40% in a short time, but on very little liquidity and volume, on the view that the International Monetary Fund sanctions will be a plus. Certainly, in the long haul, they will be. But in the near term, they will be painful. Even if the IMF sanctions work, we're still talking about negative earnings for some time, along with economies that won't support strong growth. So it's hard to get bullish in Asia.

Times: Are there any emerging markets you're excited about?

Wang: Recently there has been a lot of turmoil in Eastern Europe. In some places, like Hungary, we think it's been overdone. Hungary recently had a change in government, and some people worry the new government will be against privatization and reforms. But the new government has toned down the rhetoric since the election. We own one stock in Hungary and are looking to add more.

We also like Greece, which is stable and a full member of the European Community, with the government determined to join in [the] European Monetary Union by 2001. We're looking to add stocks in Greece.

We also are looking for opportunities on a selective basis even in Asia. We recently picked up a stock in Korea, for example. But our focus is on Eastern Europe.

Times: What catalysts would you like to see before investing more heavily in Asia?

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