Morningstar Advisor - December 2013/January 2014 - (Page 50)

ADVERTISEMENT InternatIonal equItIes offer a World of opportunIty to Value-orIented InVestors Decent Valuations, Efficiency Gains Create a Promising Environment for a Bottom-Up Approach Jonathan Matthews, lead portfolio manager of T. Rowe Price's International Growth & Income Fund International equities staged a solid advance in the first part of 2013, as the markets gained confidence about prospects for global growth and Europe's sovereign debt crisis eased. Looking ahead, many U.S. investors may wonder if international equities are still attractive. They may also question if the time is right to diversify their U.S. equity portfolios with an international component. We recently spoke with Jonathan Matthews, lead portfolio manager of the T. Rowe Price International Growth & Income Fund (TRIGX). Jonathan shared his thoughts on the specific opportunities and challenges of international equity investing over the next 12 to 18 months. Q: What trends do you see driving A: We look for decent businesses that are an ongoing recovery, it seems reasonable to international equity markets for the rest undervalued from a long-term, cyclically expect that revenue growth will remain above of 2013 and into 2014? neutral perspective. They've deviated from historical norms. In that scenario, we believe A: Our investment process is very much their intrinsic value, most likely due to it's still possible for some companies to bottom up and fundamentally driven, so temporary issues. Our focus is return on increase earnings ahead of underlying gross we pay relatively less attention to broader capital and the underlying factors driving macroeconomic trends and cyclical factors. that return. Then we value businesses based That said, we are cautiously optimistic, on the durability of those factors. Fund especially at the company level. It's possible turnover has historically been around 30%, that we'll see renewed volatility in developed meaning that we generally expect a stock to equity markets as many Western countries rise toward its equilibrium value in a two- to continue to pay down their debt. But we think three-year time frame. the global economy overall can continue Q: You said you are more optimistic about growing despite this backdrop. the prospects for specific companies than Q: Can you give us a quick overview of for developed world economies. Why? domestic product growth. In anticipation of that, we are focusing on companies where costs and industry structure have improved since the 2008 to 2009 recession. Q: You mentioned the possibility of renewed volatility. What are the most significant risks that international equity markets are likely to face over the next 12 months? A: Considering how far and how fast share prices have risen so far in 2013, there is your investment process and your time A: Companies have become pretty efficient certainly the possibility of a correction. As horizon for realizing fundamental value? over the past three to five years. So, if we see I mentioned, deleveraging remains a

Table of Contents for the Digital Edition of Morningstar Advisor - December 2013/January 2014

Morningstar Advisor - December 2013/January 2014
Contents
Contributors
Letter From the Editor
What’s Your Purpose?
Working for Gen Y
How to Allocate College Savings
Mobius Looks to a New Frontier
Investments á la Carte
Investment Briefs
How to Manage Bonds for Today and Tomorrow
Cloud Is the New Engine of Growth
Knowing Where to Look
Economic Vulnerability Varies by Country
Factor Investing in Emerging Markets
Following the Rules
Exploring Indexing’s Next Frontiers
Frequent Fliers
Family Blind Spots
Optimal Portfolios for the Long Run
Finding Value in a Pricey Sector
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Emerging-Markets Roller Coaster

Morningstar Advisor - December 2013/January 2014