A recent Barron’s article profiles value investor Fred Copper, lead manager of the Columbia Overseas Valuefund, who has learned that the best way to beat his benchmark (the MSCI EAFE Value index) is to “not invest like it.”
Copper has adopted a more flexible definition of value than some of his peers, based on his belief that traditional style benchmarks for value funds include a significant amount of cyclicality–meaning they include stocks that are sensitive to the ups and downs of the economic cycle (i.e. industrials, basic materials, energy and financials). The article reports that those sectors, which tend to be cheaper than other sectors, account for 58% of the MSCI EAFE Value index. But this bias concerns Copper, particularly given his belief that the global economy is headed for a slowdown. “The last thing he wants to own,” the article says, “are stocks vulnerable to economic weakness.”
Copper and his co-manager Daisuke Nomoto use both a class value strategy (investing in companies selling at a discount to asset or book value) as well as the style popularized by Warren Buffett which involves buying shares of corporations with wide “economic moats” that are trading at a discount to their peers. The key to deciding which strategy to use, the article explains, is figuring out where the economy is headed. “We focus on the incentives that drive business activity,” Copper says, adding, “How is the cost of doing business changing in each segment of the economy in each region of the world? Focusing on that gives you about a 12- to 18- month lead on where the economy is going.”
By having a more flexible definition of value, the article explains, Columbia has outperformed 95% of its peers in Morningstar’s Foreign Large Value category in the last five years.