Morningstar Advisor - Fall 2007 - 36

Spotlight: International Even the giant with the star-spangled moniker Growth Fund of America, from American Funds, has a foreign stake in the high teens. most dominant financial giants, for example, would include a mixture of U.S.-based powerhouses such as Citigroup C, Morgan Stanley MS, and Goldman Sachs GS, along with rivals headquartered abroad, such as Deutsche Bank DB, UBS UBS, and HSBC HBC. Who’s to say which of these players—or Credit Suisse CS or J.P. Morgan Chase JPM or a Japanese financial conglomerate—will present the most compelling prospects at the most attractive price at any given moment? Why not let a talented, experienced portfolio manager decide which one to own? The same logic applies to the cell-phone arena, where most of the top manufacturers are based in foreign countries. However, the one currently most beleaguered—Motorola MOT—is in the United States. A savvy manager might be attracted to Motorola for its tremendous upside potential if it can sort out its problems. Conversely, Nokia NOK, which is on a roll after fixing its own shortcomings of a few years ago, might be the preference. It seems inadvisable to force the manager to cross one or another off his or her list because it’s located in the wrong country. Some portfolio managers echo the point made by Longleaf’s Hawkins, noting that many firms based in the United States and abroad do so much business outside of their countries that their domicile is of limited relevance for investment purposes. Then there are even more-complicated cases, such as News Corp. NWS. That sprawling conglomerate used to have its main stock-market listing in Australia, so most investors classified it as Australian. It then moved its main listing to New York, so it now can show up labeled as a U.S. stock. It has substantial business operations in both countries—but also in the United Kingdom and Asia. It’s questionable whether, in that case, it’s even possible to nail down one country that best describes the Mike Ford-Taggart, Senior Analyst BANGALORE Indian information technology services firms have taken advantage of every positive that India has to offer. But a visit to Bangalore—the Silicon Valley of India—reveals that economic prosperity has not trickled down. A few decades ago, smart Indian entrepreneurs foresaw that one day computers and telecom networks would allow IT services to be performed from anywhere in the world. With a large segment of the populace university trained, with English as the country’s lingua franca, and with the low cost of labor, India could become the world’s computer help desk. Against this backdrop, Infosys INFY was founded, and Wipro WIT changed its strategic focus from making cooking oil to servicing IT contracts. Today, India is the most important strategic variable for every IT services firm in the world. In Bangalore, I recently met the CFO of Infosys and the head of a major unit of Wipro. Both firms are located in Electronics City, a suburb of Bangalore created to ensure reliable electricity and telecom service—two things the rest of the country can’t rely on. From the center of Bangalore to this suburb takes over an hour on traffic-clogged streets. Along the route, abject poverty was evident everywhere, and I won’t concern you with the disturbing details. It seems, however, that as the sorely needed major infrastructure investments are made over the next few decades, there will be no shortage of laborers. And then, I stepped onto the campuses of Infosys and Wipro, both of which are like college campuses in the United States, only ritzier. Infosys’ even has a three-hole golf course. These firms are benefiting from complexity and cost of maintaining IT systems, and we like their prospects very much. Throw in the fact that a firm can shave about 33% from its IT budget by outsourcing to India, and the decision becomes a no-brainer. As of Oct. 12, Wipro was trading as a 4-star stock and Infosys’ stock is nearly 4 stars. Both companies are witnessing strong growth, are run by very smart, benevolent billionaires and show no signs of slowing down. Their employees, and indeed the entire emerging Indian middle class, should continue growing and underpinning the national economy. It’s an exciting time in India, especially for investors. Dispatch From: The World’s Computer Help Desk 36 Morningstar Advisor Fall 2007

Morningstar Advisor - Fall 2007

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