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By Jeremy Glaser and Bridget B. Hughes, CFA | 05-23-2013 02:00 PM

Is Optimism Fading on International Risk?

With fears of an impending Japanese sell-off and a China slowdown, as well as ongoing sovereign debt woes in Europe, many fund managers are seeking more safety when investing abroad, says Morningstar's Bridget Hughes.

Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. We're getting ready for the 25th anniversary of the Morningstar Investment Conference in June. I'm here with Bridget Hughes. She's one of our senior fund analyst who will be moderating an international investing panel. We are going to talk to her a bit about what those mangers are thinking about some of the big international investing topics today.

Bridget, thanks for joining me.

Bridget Hughes: Thanks, Jeremy.

Glaser: Let's start on Japan. It's been an area of really extreme focus over the last couple of weeks with so-called Abenomics, with this multipronged approach to reinflating that economy. When you talk to managers and you've heard from some managers, how are they thinking about Japan. After we’ve had this huge rally and some volatility, how are they placing their bets?

Hughes: People are optimistic about the new prime minister [Shinzo Abe] and what he's been doing in word and deed to try to stimulate that economy. But remember, when you take on tactics that essentially weaken the currency, it really helps your exporters. And, of course, Japan is sort of a dual market. It's got a lot of the exporters that you know are the big companies, and a lot of the smaller companies are more domestically oriented.

So there are different ways, I guess, to play that. If you're really focusing on kind of the macro picture at Japan, you might find some of the managers invested in the big exporters, along with some maybe higher valuations. Some of the managers that we'll be talking with at the conference, this is a really great topic for the three managers on our international panel.

So you have IVA Funds. Charles de Vaulx will be representing IVA on the panel, and they've long been investors in the Japanese market, no matter what's going on with the economics. But what they really focus on are the smaller domestic-oriented companies, and they don't really invest much in the big exporters but always have an overweighting in that area.

Then we've got Rajiv Jain with Virtus Foreign Opportunities, and he really has nothing to speak of in the Japanese market. Something like less than 2% of his portfolio is invested in Japan, so that will be a nice contrast to talk about those two portfolios.

Then, Mark Yockey at Artisan International kind of splits the difference. He's sort of in between. He's underweight the index, but his position is really concentrated in just two stocks: one, Honda, being an exporter, and two, Japan Tobacco, which certainly has a big market share in the Japanese market but is also one of the larger tobacco companies globally.

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