Less than six months ago it was worth speculating how long
would remain at the helm of
two biggest foreign funds.
Due to Holowesko's investment decisions, the Templeton
Growth funds finished last year with returns and rankings that could scuttle a career. In 1998, a year in which many international funds chalked up double-digit returns, Foreign and Growth both showed losses (minus 4.89% and 2.48%, respectively) and finished the year in the bottom 10% of performance tables, according to
The funds' inferior numbers also caused wider damage: The stock price of
, Franklin Templeton's owner, was punished last year as investors feared the sharp drop in money flows into Templeton's flagship funds would damage the company's long-term prospects.
chronicled Templeton's problems in detail.
But 1999 is rapidly looking like it's going to be Holowesko's
. Year-to-date, the $12-billion Foreign, a pure international fund, has returned 19.19%, which makes it the fourth-best performer out of 594 other funds. The $13-billion Growth, a global fund that invests in the U.S. as well as foreign markets, is ahead 17.65% over the same time period and ranks 15 out of 260 over the same period. Franklin Resources' stock has rallied over 40% since early April.
In hindsight, one shouldn't have been too surprised by the rapid recoveries. After all, Templeton was jeered when it cashed out of Japanese stocks in the late eighties, only to be vindicated by the calamitous crash in Tokyo equities that soon followed. Similarly, the 39-year-old Holowesko last year shunned heavily hyped European growth companies (which have recently nose-dived) in favor of contagion-hit Asian and Latin American stocks (which have soared over the past six months).
Holowesko's numbers show he's back in the running. In an interview Wednesday,
asked him how he hopes to stay there. After all, sustainability is key: Holowesko says his recent outperformance has sparked new net inflows into his funds, to the tune of around $125 million a month. If this is reflected in official numbers, Franklin's stock price could get a boost.
Overall, his answers show him to be a card-carrying value investor who, through experience and sophistication, seems able to avoid some of the mistakes made by a lot of the managers who share his creed.
Take Asia, where, at the end of March, he had 26% of Foreign's assets. Most of his exposure to the region is in Hong Kong, where Templeton is the second-largest holder of the former colony's stocks after the government. But Holowesko, as a value investor, faces a dilemma: The strong rally in Hong Kong stocks has made some of his biggest holdings look decidedly overpriced.
, the huge Hong Kong-based global financial services company, trades at around 3.5 times book value, which is about the same as many European and U.S. banks that Holowesko might well consider too expensive.
Higher valuations have led him to start paring down his Hong Kong exposure, including HSBC. Hong Kong was 20% of Foreign, now it's 14%. However, he's not convinced that it's time to shed all of HSBC. He maintains that, once the bank's Asian operations are stripped out, investors are still getting U.S. and European businesses at a knockdown price.
Another large Holowesko holding is Argentine oil concern
, which is up over 50% year-to-date, mainly due to a recent acquisition bid by Spain's
. With YPF now trading at 23 times consensus 1999 earnings estimates, the company's valuation is looking stretched. "This has nothing to do with earnings," replied Holowesko, who argues that YPF's share price still looks reasonable when compared with the amount of oil reserves it has.
Unlike many value managers, Holowesko is unenthusiastic about Japan, where he has only 6% of Foreign. While many companies there trade at seemingly attractive discounts to book value, their return on assets are still poor, Holowesko remarked. "Japanese companies simply haven't done enough restructuring," he said, pointing to electronics maker
Most of his skepticism, however, is saved for continental Europe and the U.S. "The euro's been totally anticlimactic." Many of the most-chased European stocks are overvalued and share prices already reflect the restructuring that is likely to take place on the continent, according to Holowesko, who excludes many U.K. companies from this uninspiring picture.
Although Holowesko has 30% of Growth in the U.S., and says he can still find cheap companies there, he does talk darkly about the country.
"We're in bubble.com right now." Consumers, who have driven recent strong economic growth rates, are spending heavily because they are taking on more debt and because the stock market is buoyant. Neither is sustainable. He likens U.S. investment banks to giant hedge funds. "They're levered 22 times," he claimed, comparing their debt with their equity. "With that sort of leverage, the banks should have a return on equity of 40%, instead they return only 15%," he said.
U.S. bulls might treat such jeremiads with contempt. But remember that Japan call.