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By Jason Stipp | 05-12-2015 10:00 AM

Herro: Look to Europe for Value

European multinationals are still some of the cheapest companies in the global universe today, says the Oakmark International manager.

Note: This video is part of Morningstar's 2015 International Investing Week special report.

Jason Stipp: I'm Jason Stipp for Morningstar. It's International Investing Week on, and today we are checking in with David Herro--manager of the medalist-rated Oakmark International (OAKIX), International Small Cap (OAKEX), and Global Select (OAKWX)--to get his take on the international markets and where he is seeing opportunity today.

David, always great to see you. Thanks for coming in today.

David Herro: Thanks for the invitation.

Stipp: I want to start out by talking about your portfolio positioning at the regional level. You recently had a letter to your investors at Oakmark International that said you have 80% in Europe, 11% in Japan--which are big weightings, especially the European one. We do know that those markets, year to date, both of them have done pretty well--up around 10%. As you are thinking about the individual securities you hold and the appreciation we've seen, you still see room to run in those regions.

Herro: Yeah, how we are positioned is really a function of where we are finding individual-company value. I think it's really important to realize that a lot of these European and Japanese multinationals have revenue streams and cash flow streams that are really sourced from all over the world. I think that is one of the anomalies that we try to take advantage of. People were scared of Europe, so they stopped buying European equities, even though many of those European companies have exposure to good areas of growth in Asia, even in Latin America, where some of the growth exists. And so, really, this is why we're positioned the way we are in some of these markets.

Japan--we're actually a bit lighter than we were a few years ago. Recall that we were over 20% at one point. The market had a substantial rally; we trimmed back. We are actually starting to see a little better value; we're slowly been building some of our Japanese positions, and you could see that if you read the reports quite closely.

And in Europe, again, to us, it's just what we get for the valuations that are listed in a lot of these European countries. The European multinationals still seem to be some of the cheapest companies in the global universe, and today the euro is what we deem as "fundamentally undervalued." If purchasing-power parity for the euro is around $1.25 or $1.28, and the euro is around $1.12, we're buying cheap currency as well as getting cheap stocks.

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