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Former Mutual Series Vet Sees Value in Europe

David Marcus sees values in Germany, Britain, and even one in Russia.

Russel Kinnel, 01/04/2014

We caught up with David Marcus, manager of Evermore Global Value EVGBX, to see where he finds values today. Marcus made a good call on Europe when crises had pushed stocks there down sharply. He was bullish and that call has worked well, though the fund's record prior to Europe's rally was weak because of that Europe bias. Marcus managed funds for Mutual Series in the 1990s and posted a solid record there. His approach is clearly influenced by Mutual Series, but he's modified it a bit over time.

1) What's the strength of the Mutual Series approach that you were a part of in the 1990s, and how have you modified that strategy since leaving the firm?

The lessons I learned from working at Mutual Series under Michael Price are the foundation of what we do here at Evermore Global Advisors. The strength of Michael's approach was that it was straightforward and focused on undervalued companies where catalysts for value creation existed. We have built upon that underlying strategy by taking a private equity approach to investing in public companies. This approach leverages the business operating experience I gained after leaving Mutual Series, during which period I sat on a number of boards and helped set strategy and led major restructurings, recapitalizations, asset sales, and mergers. We believe this practical experience helps us in evaluating investment opportunities. 

Additionally, while a number of the Mutual Series funds had hundreds of positions, at Evermore we have 40 or so concentrated positions.

2) More than a year ago you said Europe was the buying opportunity of a lifetime, but now that it has rallied sharply, has that opportunity gone?

Not at all. We strongly believe the opportunity is as good as or better than it was a year ago. While Europe's markets have bounced, the underlying companies are really just beginning to scratch the surface of their transformations. The prolonged and stagnant recovery means that the companies who have started to restructure can and must do more. Meanwhile, the companies who thought they could avoid restructuring now understand that the circumstances are not improving as quickly as they had counted on. These factors may create more spin-offs, breakups, and restructurings, which are the types of special situations that we look for at Evermore.

I've confirmed this perspective with a number of European CEOs, so we believe that the opportunity is still alive. In fact, we believe it could be even better than before because the companies are now taking the actions we had expected given the environment. When we discussed this a year ago, they had not yet begun--but now we are seeing layoffs, plant closures, spin-offs, and refocusing. This opportunity is still in the early innings, and we believe that now is the time for investors to get in the game.

In addition, in a low- or no-growth environment, the conditions are ripe for an increase in M&A activity as companies start to buy growth. Companies can add extensions onto existing businesses and also expand into related areas. Companies may be in a position to bid a significant premium to their target's current price and still may be only paying a "fair" price. When situations like this happen, both the buyer and seller (public shareholders) can walk away happy.

Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. (Click here for a free issue). Mr. Kinnel would like to hear from readers, but no financial-planning questions, please. Follow Russel on Twitter: @russkinnel.

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