Herro on 2014, and What Japan Needs To Do Now

Top fund manager David Herro says that, while stocks jumped far more than most expected they would in 2013, they still should have room to run going forward.

“Despite the strong past performance of global equities, I believe there is still value in global equity markets,” Herro writes in his fourth-quarter letter to Oakmark shareholders. “Certainly, stocks are not selling at the incredible bargains they were in early 2009 or even early 2012, but with global economic growth appearing to be poised to accelerate, and with stock valuations that are still attractive, I believe there are reasons to be confident that global equities will continue to be an attractive asset class.”

Herro, whose funds profited greatly from overweight positions in Japanese firms last year, says the big gains seen for Japanese stocks has led to him paring back on those positions. “Since the low of the Topix in 2012, the market climbed around 80%!” he says. “As a result of the extremely strong uplift in prices, our holdings became less undervalued and caused us to trim some of our positions.  Given that prices rose faster than corporate value creation, by the end of 2013, we were actually well underweight in the Japanese equity market.”

Herro talks more about the corporate changes going on in Japan, and what he thinks is needed for the country to continue its progress. “I believe that in order for the economic recovery to endure, the Japanese government needs to implement real structural reform,” he says. “This means that Japan’s government must complete at least three steps: take away protections from specific industries, like agriculture; remove impediments to productivity and workforce growth; and take away the barriers to mergers and acquisitions within corporate Japan.”

Validea’s Motley Fool-inspired portfolio is up 402% since its mid-2003 inception vs. 85% for the S&P 500. Check out its holdings here.

Herro Keying on Developed Market Blue Chips

Top fund manager David Herro is continuing to find value in developed markets like America, and little opportunity in developing areas. Herro tells Bloomberg Surveillance that overall global stocks look good, especially given that we’re at a point in the economic cycle when earnings growth should be accelerating. “I think there is good value in American stocks, and in global blue chips in general,” he says. He adds that he sees good valuations for European blue chips, but that quality names in emerging markets are too expensive right now.

 Screen shot 2013-10-21 at 3.43.40 PM

Herro: Don’t Bail on Europe

Are the latest troubles in Europe a reason to ditch European stocks? Top fund manager David Herro says no. In an interview with CNBC (via Yahoo Finance), Herro says that many investors who are ditching European stocks are making the mistake of not realizing that many European firms get a good deal of their business outside of Europe, like in emerging markets where growth is strong. He says he’s high on three main areas of the European market right now: financials, staples, and luxury  goods. Herro also days he thinks the European auto market is bottoming.

Screen shot 2013-10-01 at 12.09.57 PM