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By Jason Stipp | 05-07-2010 03:30 PM

Herro: Second Shoe Dropping in Europe

The Morningstar International Manager of the Decade says he's been slowly adding to oversold European positions in his portfolio.

Jason Stipp: I'm Jason Stipp for Morningstar. With Europe having one of its worst weeks in about the last three months or so, we're checking in with David Herro. He's a manager at Oakmark International.

He was also named Morningstar's Fund Manager of the Decade recently. He's got a lot of holdings in Europe, but we want to get his take on what some of the action over there means for his portfolio holdings and his outlook. David, thanks so much for joining me.

David Herro: You're welcome. I'm very happy to be here.

Stipp: The first question for you: Your portfolio holds more that 50%, at least from the last reported portfolio we have, more than 50 percent in Europe. Obviously, Europe's sensing some shocks today. The Greek crisis seems to be spilling over. There's also some uncertainty in the UK.

We spoke with some others today, including Mohamed El-Erian, and he said that a lot of these instances in Europe may lead to deflation. I was wondering what your take is on an equity level for your European holdings. Might this affect the valuation of those holdings, and has the situation changed for those stocks?

Herro: I'll tell you what, it's mixed. I think for those companies which are outwardly focused, that perhaps are dollar earners, have a lot of exposure outside of Europe, this depreciation of their home currencies is actually going to be very beneficial to them, both in terms of competitiveness, and in terms of when you start reporting income.

All else being equal, it's going to be substantially higher as they are operating in currencies that have...their home currencies weakened, and they're earning profits in strong currencies and are bringing them back home.

So if you're an exporter or a global company, all else being equal, operationally, things are good for you. However, if you are a company that is dependent on European consumer spending alone, you're probably going to be in a little bit of trouble.

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