- Born in Germany and raised in France, Danton Goei grew up speaking three languages in an Indonesian-Chinese family.
- Now, as an American portfolio manager traveling the globe to scoop up undervalued companies, he is uniquely positioned to manage the $382.9 million Davis International Fund, which has beaten 97% of its peers year-to-date.
- Goei argues that the negative headlines on US-China geopolitical tensions have created a lot of buying opportunities as the valuations of Chinese stocks get dragged down.
- He shares three top stock picks from the international portfolio in which he has invested over $1 million of his personal assets.
- Visit Business Insider's homepage for more stories.
It's hard to find another person more cut out for picking international stocks than Danton Goei.
Born in Germany and raised in France, Goei grew up speaking three languages in an ethnically Indonesian-Chinese family.
Initially wanting to become a diplomat, he went to the Georgetown School of Foreign Service for college before pivoting to international business and getting his MBA from the Wharton School at the University of Pennsylvania.
After a finance career spanning Bain & Company, Morgan Stanley Asia, and Citicorp, Goei had a meeting of the minds with Chris Davis — the grandson of founder Shelby Cullom Davis, who famously turned $100,000 in the late 1940s into more than $800 million by the end of his career in the early 1990s.
"I met Chris Davis in the late 90s," Goei recalled. "And he had been talking about how the research team here has been set up on a global basis, meaning that every analyst here is a global analyst whether you're covering consumer products, healthcare or industrials, you're doing on a global basis just because that's how companies compete today."
The global approach to investment management naturally appealed to Goei, who has been with Davis Advisors for 22 years managing five strategies totaling $13 billion in assets. His $382.9 million Davis International Fund is now in the 2nd percentile year-to-date, beating its benchmark index and category peers by more than 12%, according to Morningstar.
Selective with international opportunities
As a bottom-up value investor, Goei is always on the lookout for companies with strong competitive advantages, experienced and honest management teams, and long-term cash generation. Once he finds those companies, he tends to take a five-year investment horizon to allow "the power of compound to work its magic."
While he believes no stock is a must-own if it doesn't have attractive valuations, the international fund benefits from its unconstrained mandate, which means it can scoop up opportunities in any country, industry, and market cap.
"I think that's a big advantage that you give yourself basically the broadest possible candidate pool of companies
and increase your chances of outperforming," said Goei.
However, he is extremely selective about these opportunities and runs a focused portfolio of 30 "best-of-breed companies."
Buying opportunities in China
The international fund today has investments in 12 countries and just three of them are emerging markets. One of these countries offering the biggest opportunities right now is China, Goei said.
Despite plenty of negative headlines surrounding US-China geopolitical tensions, domestic-facing Chinese stocks have bounced back from an initial decline on the news of the US- China trade war and continue to grow their revenue at a fast pace.
"When I look at the stock performance of our top four Chinese holdings for example, these four holdings — New Oriental Education, Alibaba, JD.com and Meituan — fell 38% on average in the second half of 2018. So a pretty dramatic decline," he said.
"But if you look at the next five quarters starting in Q4 2018, those four companies on average grew their revenue 39% year-over-year."
Better yet, Goei believes that the short-term headline risks on the escalation of US-China trade wars have presented "real buying opportunities" as the valuations of Chinese stocks go down but their fundamentals remain intact.
"Right now I think there's a big opportunity because people are very worried about this US-China relationship," he said. "But if at some point, like it's happened in the past, people become more bullish about China, then valuations will rise a lot and at that point, we'll adjust our portfolio because we're value investors and we focus a lot on price."
One of Goei's top picks to play this dynamic is New Oriental Education (EDU), a private educational provider of after-school tutoring and overseas study consulting for Chinese students.
China's large population and its governmental and cultural emphasis on education provide a prime playing ground for New Oriental, but it is the underpenentration of after-school tutoring programs in the country that offer the biggest opportunities, according to Goei.
"In China, about 36% of the children go to after-school tutoring schools and whereas in Korea and Japan, those figures are over 80%," he explained. "The big gap there is just mostly because of income. Not all Chinese families can afford to but that's growing every year, so the market overall is growing very rapidly."
"But what's amazing is that with 1,100 learning centers, New Oriental still only has 3% or 4% market share of the after-school tutoring market, so huge amount of growth going forward," he added, noting that the firm's investment in online class offerings also paid off handsomely in the midst of COVID-19.
Bullish on financials
In addition to Chinese consumer stocks, Goei is positive on the financial sector.
"It's not the most beloved sector because interest rates have been falling, but the financials have entered this recession with much stronger balance sheets and much higher capital ratios than it did in the 2008-2009 financial crisis," he said. "Yet the valuations are expecting a similar sort of catastrophic impact on the banks."
"So we think that they're safer because they've built up over the last decade. Plus, their balance sheets and their credit decisions have been much more conservative because people still remember the last financial crisis," he added.
But Goei looks beyond state-owned Chinese banks or big European banks for alternative opportunities in thriving economies.
One such example is Hong Kong-based life insurer AIA Group.
"The life and health insurance market is a really interesting one in Asia. It has very low penetration today relative to US and Europe," said Goei. "AIA's future is going to be driven by the growth in China and as people look for different ways to save."
"Their sales force is five times as productive as the industry average, meaning that their sales reps sell five times as much as the industry average, so that's huge," he added.
"It means that there's a big demand for the products so they don't have to hire many salespeople, because people already know about them and are coming to them. It also means that they have much lower costs relative to their competitors."
Another stock that fits the profile is Norway's DNB ASA, the country's largest financial services firm.
"It's amazing to think that there's about a quarter million dollars, about $2,000 to $3,000 for every man, woman and child in the Norwegian Sovereign Wealth fund, so it's a very well-run economy," Goei said. "The stock is trading at about ten times next year's earnings, so much lower than the market."
"Right now they're not paying a dividend given the recession, but we expect them that next year they'll be able to pay a 6% dividend yield and that's massive."
'We believe in eating our own cooking'
With US stocks outperforming international stocks over the past decade, it's been a hard sell pitching investors to put money in a highly concentrated international strategy. But Goei has high convictions for the stocks in his portfolio and has put over $1 million of his own money into the fund.
"We believe in eating our own cooking," he said, noting that Davis Advisors is also among the largest investors in the portfolio. As a whole, the firm has more than $2 billion of its own assets invested in its fund and other accounts, according to its website.
"Those companies in the portfolio on average are trading at about 30% valuation discounts for the companies in the index,"he said. "So you've got a situation where you've got much faster growing companies yet you're paying a lower multiple."
"And that's why we have such a focus before because it's hard to find those type of investments so you want to make them meaningful when you do come across them."
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