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By Gregg Wolper | 01-03-2013 11:00 AM

Contrarian Approach to Growth Pays Off

Morningstar 2012 International-Stock Fund Manager of the Year Rajiv Jain expects continued earnings growth for the less popular growth stories of tobacco and Indian consumer stocks.

Gregg Wolper: Hello. I am Gregg Wolper of Morningstar, and I am here with Rajiv Jain of Vontobel Asset Management. He has just been named Morningstar's Manager of the Year for International-Equity Funds. He is here to talk about those funds and his strategy, but first I'll tell you the funds that he runs. He runs several Virtus funds here in the United States the most noteworthy being Virtus Foreign Opportunities and Virtus Emerging Markets Opportunities. He also runs some funds that are offered in Europe under the Vontobel name. First, I would say congratulations, Rajiv, for your victory in this award.

Rajiv Jain: Thank you. Thanks a lot.

Wolper: You're welcome, and thanks for joining us today.

Jain: My pleasure.

Wolper: I think one thing that people might be interested in is the fact that, as we've spoken, you have said you're a growth manager. You're interested in growth, even though that's not on the label of the fund. These are growth funds and their portfolios do show up consistently in the growth area of the Morningstar Style Box. Yet, if you look at the top of the portfolio, you see tobacco companies, banks, some companies that people don't necessarily associate with rapid growth or an aggressive growth strategy. How do you think of it this way? How does the strategy play out and still be a growth strategy?

Jain: That's a good question and an important question because I've always felt that growth for the sake of growth can actually be not a sustainable strategy. And that's why if you look at growth managers, typically in down markets they get taken out. And we feel that valuation is a critical part of growth.

The second thing is capital discipline in terms of how much capital can we get back. So, for tobacco names, it is a growth industry from an earnings-per-share perspective because of the share buyback and the pricing power that they have. And the banks we feel that at this point--and as you know, we did not own banks for five odd years. We had no European bank except HSBC for almost five years. But now, at this point, last summer especially we've felt that there is a lot of capital which can be released from these. There is a lot of cost-cutting and so forth, so even if the economy is not doing well, we should be able to get a lot of capital back. So, that's kind of how the process works.

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