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Feb. 10, 2018, 7:22 a.m. EST

Five-star fund managers find ‘idiosyncratic’ companies to beat international benchmark

The AMG Managers Pictet International Fund buys ‘attractive companies at attractive prices’

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By Philip van Doorn, MarketWatch


Getty Images
The managers of the AMG Managers Pictet International Fund favor Safran as an investment because its order backlog means decades of continuing contracts for maintenance of aircraft engines.

The AMG Managers Pictet International Fund typically doesn’t follow its rivals into high-flying stocks, opting instead for deep research to uncover what often turn out to be “idiosyncratic” companies, said Ben Beneche, the fund’s co-portfolio manager.

Coverage of investing outside the U.S. usually is focused on emerging markets, especially China, as Alibaba /zigman2/quotes/201948298/composite BABA -0.40% , Tencent /zigman2/quotes/207908563/delayed TCEHY -0.10%  and Baidu /zigman2/quotes/209050136/composite BIDU -2.92% enjoy rapid growth as the government supports their virtual monopolies.

But you won’t find those names among the top holdings of the AMG Managers Pictet International Fund /zigman2/quotes/207445449/realtime APINX -0.51% . Beneche and co-managers Fabio Paolini and Swee-Kheng Lee favor companies including British medical-device maker LivaNova PLC /zigman2/quotes/208121019/composite LIVN +0.50% , Switzerland-based food company Nestle SA /zigman2/quotes/208115528/delayed CH:NESN +0.21% and Japan Tobacco Inc. /zigman2/quotes/208255672/delayed JP:2914 +0.98% . Nine of the mutual fund’s top 10 holdings have posted gains over the past three years, the sole exception being Anheuser-Busch InBev SA /zigman2/quotes/203831500/delayed BE:ABI +0.14% .

“We do not think we have an edge in terms of predicting the cycle of future political events. We have an edge in playing the long-term game of buying attractive companies at attractive prices,” said Paolini, who heads the AMG Pictet International funds’ strategy.

Read: This stock might be your best bargain investment in China’s growth

Beneche said the fund’s management team is being “extremely selective in order not to be caught by severe [price-to-earnings valuation] multiple contraction or earnings contraction.” Concern over inflated valuations is no doubt weighing heavily on U.S. investors weathering a sustained selloff for stocks.

One area Beneche believes has gotten frothy is semiconductors, which is backed up by this chart showing the five-year performance of the S&P 500 semiconductors subsector against the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.21% :


FactSet
The S&P 500 semiconductors subsector has more than doubled the return of the broader index over the past five years.

It has been an incredible five-year ride for semiconductors, as investors expect the industry to stay on a rapid growth path because of the internet of things — the trend for consumer devices and home appliances to be connected to the internet.

But Paolini says many stocks in the industry are now overpriced.

“It is fair to say we are seeing signs of high margins and unsustainable levels of profitability in some elements of the semiconductor supply chain,” he said.

Still, the fund has some exposure to semiconductors, including ASML Holding N.V. /zigman2/quotes/206208657/delayed NL:ASML -0.08% , its ninth-largest position as of Dec. 31.


AMG Funds
Fabio Paolini, senior investment manager, AMG Managers Pictet International Fund.

Three stock picks in Japan, South Korea and France

Beneche described Cocokara Fine Inc. /zigman2/quotes/209455928/delayed JP:3098 -0.31%  as “one of the long-term winners” as Japan’s pharmacy market consolidates. Unlike in the U.S., where two drugstore chains dominate the pharmacy space, the top 10 chain companies in Japan make up about 40% of the market.

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US : U.S.: NYSE
$ 186.41
-0.75 -0.40%
Volume: 17.09M
Nov. 11, 2019 3:19p
P/E Ratio
33.28
Dividend Yield
N/A
Market Cap
$489.96 billion
Rev. per Employee
$781,259
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/zigman2/quotes/207908563/delayed
US : U.S.: OTC
$ 41.75
-0.04 -0.10%
Volume: 2.76M
Nov. 11, 2019 3:04p
P/E Ratio
30.60
Dividend Yield
0.28%
Market Cap
$396.53 billion
Rev. per Employee
$1.05M
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/zigman2/quotes/209050136/composite
US : U.S.: Nasdaq
$ 120.93
-3.63 -2.92%
Volume: 3.36M
Nov. 11, 2019 3:19p
P/E Ratio
17.67
Dividend Yield
N/A
Market Cap
$34.19 billion
Rev. per Employee
$365,691
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/zigman2/quotes/207445449/realtime
US : U.S.: Nasdaq
$ 9.70
-0.05 -0.51%
Volume: 0.00
Nov. 8, 2019
loading...
/zigman2/quotes/208121019/composite
US : U.S.: Nasdaq
$ 73.70
+0.37 +0.50%
Volume: 174,938
Nov. 11, 2019 3:17p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$3.55 billion
Rev. per Employee
$276,740
loading...
/zigman2/quotes/208115528/delayed
CH : Switzerland: SWX
CHF 104.34
+0.22 +0.21%
Volume: 3.05M
Nov. 11, 2019 5:30p
P/E Ratio
33.47
Dividend Yield
2.35%
Market Cap
CHF300.65 billion
Rev. per Employee
CHF296,880
loading...
/zigman2/quotes/208255672/delayed
JP : Japan: Tokyo
¥ 2,463.00
+24.00 +0.98%
Volume: 5.02M
Nov. 11, 2019 3:00p
P/E Ratio
11.88
Dividend Yield
6.25%
Market Cap
¥4326.29 billion
Rev. per Employee
¥34.64M
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/zigman2/quotes/203831500/delayed
BE : Belgium: Euronext Brussels
71.20
+0.10 +0.14%
Volume: 1.70M
Nov. 11, 2019 5:35p
P/E Ratio
21.73
Dividend Yield
N/A
Market Cap
€139.31 billion
Rev. per Employee
€268,229
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/zigman2/quotes/210599714/realtime
US : S&P US
3,086.65
-6.43 -0.21%
Volume: 967.68M
Nov. 11, 2019 3:20p
loading...
/zigman2/quotes/206208657/delayed
NL : Netherlands: Euronext Amsterdam
241.85
-0.20 -0.08%
Volume: 702,071
Nov. 11, 2019 5:38p
P/E Ratio
45.50
Dividend Yield
0.00%
Market Cap
€101.68 billion
Rev. per Employee
€470,770
loading...
/zigman2/quotes/209455928/delayed
JP : Japan: Tokyo
¥ 6,330.00
-20.00 -0.31%
Volume: 36,000
Nov. 11, 2019 3:00p
P/E Ratio
14.89
Dividend Yield
1.33%
Market Cap
¥152.53 billion
Rev. per Employee
¥64.24M
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