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By Christine Benz | 08-10-2011 12:11 PM

Stewart: U.S. Safe Port in the Storm

Despite its problems, the United States remains more attractive to investors than Europe, according to Wasatch's Sam Stewart.

Christine Benz: Now, I'd like to shift gears Sam, you also run a global fund, the Wasatch Global Opportunities fund. I'd like to talk about, what you're seeing in Europe versus the U.S. and which of those markets you think has been sold off hardest and represents the more attractive value at this point in time?

Sam Stewart: Well, I definitely think the U.S. is more attractive than Europe. The U.S. has done a much better job of biting the bullet, and I think, Europe is still in the situation of sweeping problems under the rug, and the issue, I think, is whether the whole euro project is going to survive, but then if it breaks up, there will be all of the confusion and disarray. Now having said that, I would say that we are really stock-pickers working from the bottom out rather than macro guys. So, we in fact own a number of European companies that are doing very well. I think it's also worth throwing in the emerging markets into this discussion, particularly, the BRICs because you've got some excellent companies in Brazil, in China, in India, and Russia--though we don't happen to own any Russian companies--that are doing very well. These markets have sold-off even harder than Europe or the U.S. and really the growth prospects in BRIC countries are much better than either Europe or the U.S.

So, there are some really interesting situations around the world. If I had to rate them right now, I would probably stick with the U.S. first; it's a safe port in a storm. It's why Treasury bond prices rallied in spite of the downgrade of their credit quality because, around the globe, the U.S. is recognized as safe haven. I think in trouble times investors are always best served by, I like to put it as A-B-C, always be cautious. So, that's why I'd pick U.S. as number one, and then I would go with the BRICs as number two and then Europe would be quite a laagered in third place, if you're just talking at the general macro level.

Benz: Right. So, you wrote a letter to your clients, that was on your website and you were talking about the importance of maintaining a globally diversified portfolio that you think a lot of growth will come from overseas. Do you have any other counsel that you would give to investors at a time like this, when a lot of them are naturally feeling pretty skittish?

Stewart: Well, I really think that you should think of the Standard & Poor's downgrade as somebody having yelled "Fire!" in a crowded theater. So, the last thing you're going to do in a situation like that is rush toward the exits. You probably better just stay in place, kind of assess the situation and then if in fact, the theater really is on fire, you can find a safe way out rather than rushing for the exits. So mostly, I would urge the investors to sit calm because the reality is, I think, we are still in a recovery. It's slow; it's spotty. But we knew that from the get go because of all the debt issue we have to deal with.

I think to react quickly here is a big mistake. Quality obviously is a good place to go, so I would urge investors, if they are uncertain about companies they own and they're not convinced of their quality then it might be time to upgrade the quality of your portfolio here. But mostly, I would say, "Hey, let's let the smoke clear," because, I don't think there is any particular rush to do anything.

Benz: OK. Well, thank you Sam, for sharing your insights. We very much appreciate it.

Stewart: Well, thanks for the opportunity, Christine, and I wish your listeners best of luck in their investing.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.

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