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IVA's de Vaulx Likes Astellas Pharma: A Great Bargain (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: dot com, the Radio plus mobile last, and on your radio.
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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pellett. The SMP five hundred index is trading higher,
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  Speaker 1: poised for a fifth record in six sessions. Stocks are advancing,
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  Speaker 1: with the SMP up six now to one sixty eight,
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  Speaker 1: a gain of three tenths of one percent. Cow Industrial
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  Speaker 1: is up twenty three points to eighteen thousand, five hundred forty,
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  Speaker 1: a gain of one tenth of one percent, as stack
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  Speaker 1: up thirty one points to five thousand sixty one, a
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  Speaker 1: gain of six tenths of one percent. Ten Yere down
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  Speaker 1: eleven thirty seconds, zeal there one point five eight percent,
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  Speaker 1: Gold up to fifty ounce to thirteen thirty a gain
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  Speaker 1: of two tenths of one percent. And crude oil towns
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  Speaker 1: seventy cents of arrol forty five twenty six right now
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  Speaker 1: on West Texas ITEMDIA crude at as a drop of
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  Speaker 1: one and a half percent. I'm Charlie Pellett. That's a
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  Speaker 1: Bloomberg Business Flash. Thank you very much, Charlie Pellett. It's
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  Speaker 1: time now, for the e t F report. It is
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  Speaker 1: brought to you by National Realty Providers of Satisfaction Guaranteed
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  Speaker 1: New York City Realty Investments. See them at n r
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  Speaker 1: I A dot net. Let's go to Katherine Cowdery and
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  Speaker 1: get the e t F report. Investors flocked to riskier
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  Speaker 1: assets last week, reflected in the e t F industry.
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  Speaker 1: We saw tons of money fly into the most popular
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  Speaker 1: e t F s used by the trading crowd UM
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  Speaker 1: s p Y, the queues IWM, and emerging markets. Bloomberg
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  Speaker 1: Intelligence analist Eric Baltuna says emerging market equity e t
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  Speaker 1: s We're on fire. They took in four billion dollars.
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  Speaker 1: He has that institutional investors are diving into e M,
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  Speaker 1: the I Shares MSCI Emerging Market e t F, which
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  Speaker 1: attracted two billion dollars in new assets during the week.
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  Speaker 1: The reason we know it's institutions is because e M
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  Speaker 1: Traditionally it trades a ton like three billion dollars a day,
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  Speaker 1: but it's very expensive. Most advisers in retail have switched
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  Speaker 1: to using I e MG, which is the I Shares
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  Speaker 1: newer model, which is sixteen basis points in terms of fee,
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  Speaker 1: whereas e M sixty nine. But it trades so liquid
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  Speaker 1: that institutions just, you know, that's what they need. This
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  Speaker 1: what they want. I E MG as e I Shares, Core,
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  Speaker 1: MSCI Emerging Market CTF IT two gained assets last week
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  Speaker 1: one billion dollars worth. That's your Bloomberg ETF report. I'm
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  Speaker 1: Catherine Cowdery. You're listening to Taking Stock with Kathleen Hays
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  Speaker 1: and Pim Box on Bloomberg Radio. Gold behold gold and
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  Speaker 1: it's year to date increase? What will push gold prices higher? Well,
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  Speaker 1: for that and other questions, we have Charles Davout. He
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  Speaker 1: is the chief investment officer for International Value Advisers, helping
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  Speaker 1: to manage more than eighteen billion dollars in customer assets.
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  Speaker 1: Charles joins us in the studio today. Charles, thanks for
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  Speaker 1: coming and appreciate it. Let's begin by just understanding exactly
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  Speaker 1: why it is that you own what about six and
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  Speaker 1: a half percent of the portfolio and gold right now. Well, Pain,
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  Speaker 1: that's because we run long only mutual funds. Yet our
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  Speaker 1: goals are to try to deliver, if possible, every calendar
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  Speaker 1: year positive absolutely returns. Yet we do not short, we
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  Speaker 1: do not use leverage and so to have as a
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  Speaker 1: tool gold, which more often than not, not always, but
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  Speaker 1: more often than not, can go up when stocks or
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  Speaker 1: bonds go down, and vice versa, is a wonderful is
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  Speaker 1: a wonderful tool. It often acts as a hedge, all right,
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  Speaker 1: It acts as a hedge, a hedge against the clients
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  Speaker 1: in equities and the clients in bonds you describe. Yes,
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  Speaker 1: you know, short term, but in the longer term. It
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  Speaker 1: also has been a great hedge against the debasement of currencies.
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  Speaker 1: Over time, things there's been inflation, and over time gold
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  Speaker 1: has held its purchasing power, so it's been a wonderful
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  Speaker 1: hedge against inflation. Also, let's not forget that gold has
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  Speaker 1: can be a wonderful hedge is deflation During the thirtiest
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  Speaker 1: banks when bankrupt and so you your money at the
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  Speaker 1: bank was not safe with gold, there is no counterparty risk.
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  Speaker 1: Gold is not an IOU. So it's also a wonderful
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  Speaker 1: tool to have when there's too much debt in the
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  Speaker 1: world and and there's a risk of deflation. So can
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  Speaker 1: we link this to a wider strategy or a wider
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  Speaker 1: perspective that you have on global investment landscape. Yes, basically,
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  Speaker 1: today you know, thanks to quantitative easing, ultralow interest rates,
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  Speaker 1: manipulated rates, interest rates which either in nominal terms or
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  Speaker 1: adjusted for inflation, are negative. It's wonderful to have gold
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  Speaker 1: in your portfolio, which uh doesn't cost you anything. If
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  Speaker 1: you a third of all government bonds outstanding have negative
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  Speaker 1: yields to maturities gold with gold, you don't have a
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  Speaker 1: negative yield to maturity. There's something to be said for that. Now.
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  Speaker 1: You also, in addition to your gold position, you have
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  Speaker 1: of your assets in cash well and a little less
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  Speaker 1: than that. You know, thanks to Brexit, we've been able
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  Speaker 1: to put some of the cash to work. So I
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  Speaker 1: believe now it's closer to thirty six six or which
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  Speaker 1: is still sizeable to say the least. And the reason
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  Speaker 1: is that we'd rather hold cash than force ourselves to
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  Speaker 1: buy or hold overvalued securities. And yet around the world
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  Speaker 1: we feel that most stocks and bonds are price for perfection,
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  Speaker 1: to say elegantly. To say it less elegantly, I would
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  Speaker 1: say that they often are at nose bleed valuation level.
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  Speaker 1: And so to hold cash which cannot go down when
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  Speaker 1: the stocks and bonds can go down is is a
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  Speaker 1: great thing. Also, more importantly, Let's not forget that cash
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  Speaker 1: has huge optionality value. Now, when people say you're supposed
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  Speaker 1: to pounce when this blood in the street, supposed to
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  Speaker 1: buy low so that you can then sell high, you
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  Speaker 1: actually need cash to buy law. So the cash on
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  Speaker 1: which we are making no money today, in fact we're
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  Speaker 1: losing money after inflation, hopefully will help us by great
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  Speaker 1: bargains in the future. Now, in addition to having the
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  Speaker 1: cash that may be available, you also have to have
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  Speaker 1: the discipline to hold cash, particularly when you may have
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  Speaker 1: investors who say, well, I can hold cash, I don't
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  Speaker 1: need to pay you, or I don't need to have
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  Speaker 1: a fund that holds cash. Comment on that absolutely, which
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  Speaker 1: is why it's very important to have the right client base.
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  Speaker 1: The overwhelmed majority of our clients, many of which come
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  Speaker 1: to us through financial advisors, and we do have a
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  Speaker 1: few institutional investors, what they expect from us is protection
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  Speaker 1: of of of the wealth. Ultimately, capal preservation is more
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  Speaker 1: important for them two become very rich. This is saying
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  Speaker 1: you only need to be rich ones. So in many
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  Speaker 1: ways things are asymmetrical. Likewise, some of our clients are
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  Speaker 1: are not so rich, and you if you're not so rich,
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  Speaker 1: you cannot ord to lose the little you have, so
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  Speaker 1: which doesn't mean that you should not, um you know,
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  Speaker 1: own risky assets in your portfolio. It means that the
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  Speaker 1: risk reward has to be stacked in your favor for
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  Speaker 1: you to own risk assets. Which is why we value investors.
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  Speaker 1: We like to buy securities whenever they trade at what
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  Speaker 1: we believe is a is a big discount, a big
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  Speaker 1: margin of safety. To use Benjamin Graham's words Benjamin Graham,
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  Speaker 1: the father of investing, we like to buy things at
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  Speaker 1: a discount so as to make sure that the risk
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  Speaker 1: reward is stacked in our and our clients favor. Is
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  Speaker 1: that consistent with the idea that you know you make it?
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  Speaker 1: For example, when you buy a home, you make your
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  Speaker 1: money really when you purchase the house, not when you
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  Speaker 1: sell the house, but when you purchase it. Yeah, of course,
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  Speaker 1: and the irony play is that you you don't know
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  Speaker 1: it at the time, but absolutely the the altar, the
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  Speaker 1: most important variable determinant of the investment outcome is the
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  Speaker 1: price and and and the v I v A stands
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  Speaker 1: will value. And it's not because interest rates are low
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  Speaker 1: that we will uh, we will change at our weare
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  Speaker 1: of investing. We're speaking with Charles Davohe is the chief
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  Speaker 1: investment officer for International Value Advisors. Just to note that
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  Speaker 1: the i v A Worldwide Fund is up about three
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  Speaker 1: and a half percent so far this year. The i
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  Speaker 1: v A International Fund, I believe is up more than
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  Speaker 1: two and that is with this gold holding and with
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  Speaker 1: your cash position. Speak if you can about those bargains
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  Speaker 1: or potential bargains that you may have seen in the
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  Speaker 1: United Kingdom because of the Brexit vote on June. Well,
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  Speaker 1: we've added to a stock which trades in the UK
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  Speaker 1: called Millennium and Copthorn. Now they are a subsidiary of
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  Speaker 1: a Singapore Group City Development. They do own a few
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  Speaker 1: hotels in the UK, but overwhelmingly they're hotels are in
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  Speaker 1: Asia and a few in the US and on. If
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  Speaker 1: you look at the value of all the hotels they own,
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  Speaker 1: compare it to the share price, you'll notice that the
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  Speaker 1: stock is significantly undervalued. Tell me about Bank of America.
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  Speaker 1: They just released their results and it seemed as though
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  Speaker 1: the market is responding favorably. The shares are up about
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  Speaker 1: three and three quarters of our percent today. Yes, we
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  Speaker 1: like the fact that Bank of America is very US centric,
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  Speaker 1: very little exposure to the UK or Europe or Asia
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  Speaker 1: for that matter, and we believe that they were trading
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  Speaker 1: way too cheaply relative to JP Morgan and Wells Fogo,
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  Speaker 1: which are perceived to be much better managed banks. And
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  Speaker 1: we believe that there's been tremendous cost cutting going on
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  Speaker 1: the Bank of America. There's a lot more to go.
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  Speaker 1: The balance sheet is strong enough, and in the fullness
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  Speaker 1: of time, whenever that is, when interest rates finally go
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  Speaker 1: back up in the US, Bank of America will be
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  Speaker 1: a beneficiary of that. A Stella's Pharmaceuticals. Now, this is
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  Speaker 1: a Japanese based company, but it is really a global business. Absolutely.
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  Speaker 1: They it's a thirty five billion market cap company. It's
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  Speaker 1: a big company, although the name is not well known.
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  Speaker 1: And one of their leading products is Prograph, which is
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  Speaker 1: an immuno supresident used to prevent organ rejects. And the
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  Speaker 1: company is has one very strong balance sheet, has net
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  Speaker 1: cash great, has a great pipeline of of products to
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  Speaker 1: come existing products, and they have a remarkably un Japanese
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  Speaker 1: capital education policy, meaning in a good sense, in the
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  Speaker 1: sense that they are willing to pay dividends and when
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  Speaker 1: the stock price is low enough, they're willing to massively
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  Speaker 1: buy back their own shares, so we and the stock.
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  Speaker 1: Even though the stock is has tripled over the past
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  Speaker 1: six seven years, it's still a great bargain. Thanks very
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  Speaker 1: much for giving us some great ideas. Charles Devo is
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  Speaker 1: the Chief Investment Officer for International Value Advisors, helping to
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  Speaker 1: manage more than eighteen billion dollars of customer assets. This
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  Speaker 1: is Bloomberg. Yeah,