March - CI Investments

COMMENTARYAs value investors, we typically find opportunities amongmore esoteric companies, businesses going throughchanges, or those facing temporary headwinds. The currentenvironment, however, appears to be one of those uniqueepisodes where value exists among more recognizable andhigh-quality companies. Not confined to particular industriesor regions, such holdings include Nestlé (Switzerland),Canon (Japan), Principal Financial Group (U.S.), andCisco Systems (U.S.). We certainly have our share ofmore controversial companies, including BioMarin (U.S.),NKSJ Holdings (Japan), Bangkok Bank (Thailand), MitsuiCorporation (Japan), Ubisoft Entertainment (France), andSime Darby (Malaysia). We believe this combination ofcompanies has resulted in a distinctive portfolio that ispoised to deliver superior risk-adjusted returns with a lowercorrelation to broad markets.S&P 500 Average Company % Cash-to-Assets% Cash-to-Assets15.0%14.0%13.0%12.0%11.0%10.0%9.0%8.0%7.0%6.0%198019841988Source: Factset Fundamentals, Altrinsic Research1992Chart 1: U.S. companies have aggressively cut costs and are buildingup cash reserves, which bodes well for shareholder-friendly moveslike acquisitions, increasing dividends and buying back shares.1996200020042008An unintended result of these company-specific investmentsis our overweight exposure to Japan, a slight overweightexposure to Europe, and an underweight exposure to NorthAmerica. Our direct investment in emerging markets is nearour all-time low, reflecting the high valuations and aggressiveexpectations already priced into local shares. In contrastto the conditions that existed 10 years ago, we believe thatcurrently the best means of benefiting from the long-termemerging markets growth story is by investing in high-qualitymultinational companies, including those mentioned above.Much of our European and North American exposureis invested in this type of company. Although our directemerging market exposure is 4% of the portfolio, our effectiveexposure is 24%, which was derived from the proportion ofour holdings’ sales to emerging markets.Our most notable outliers, which are embedded in ourindustry exposures, include an overweight position inEuropean multinational consumer franchises, Japanesefinancials, and Japanese industrial companies. Notableunderweight exposures include financials (particularly inEurope), telecommunications and utilities. Our exposure totechnology companies is near its all-time high, and we havebeen further adding to quality franchises in the health caresector.Given the relative strength of company-specific fundamentals,we believe the greatest risks reside at the sovereign level andamong those highly leveraged companies that led marketperformance from the March 2009 lows. As the balancesheets and credit quality of Western nations remain underPAGE 49 • SPRING 2010 PERSPECTIVE AS AT MARCH 31, 2010