Foreign funds increasingly drawn to U.S.

March 23, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Test your worldwide investment knowledge.

Guess the name of a great country for investment that is attracting foreign dollars because its corporate earnings are getting stronger each quarter, its interest rates aren't likely to go much higher and its currency is stable.

The answer is: The United States of America.

Coming amid both the desperate worry about a domestic market correction and the rush to invest in foreign mutual funds, that response may sound mildly laughable.

But Louis Navellier, editor of the 17,000-circulation MPT Review investment letter and manager of more than $900 million in pension and other account money, maintains that it's true. Whether or not you share his current enthusiasm for the U.S. market, his reasoning is worth noting.

"International investors from Germany, Switzerland, Israel, Latin America and Canada are turning to the United States to park their money this year because it's viewed as a safe haven," explained Mr. Navellier.

As evidence, he points to his Momentum Navellier Fund, sold only to non-U.S. investors through the London-based Momentum fund family. It has quickly grown to more than $15 million since it was introduced to foreign investors at the end of last year and is now gaining money at a pace of $3 million a week. Unlike many Americans, overseas investors see quite a bit to like here as our economy accelerates at a time when many foreign countries are still floundering or in early recovery stages.

"U.S. stocks may seem expensive, but their price-to-earnings ratios are falling because of much better earnings," said Mr. Navellier, whose model portfolio rose 1,092 percent from 1985 to 1993 to rank as the best-performing investment letter for that period, according to the Hulbert Financial Digest.

A year ago, Mr. Navellier's recommended list included about 80 stocks in a few industries, but that has ballooned to 204 this year because of positive factors such as the improving economy, earnings momentum, profit margin expansion and sales growth. Choices are diverse, including lumber, construction, auto suppliers, semiconductors, retailing and telecommunications. Diverging slightly from his American theme, he's also recommending a few foreign company stocks sold here as American depositary receipts.

The day I met with Mr. Navellier, he was preparing a presentation for a large pension fund of which he is one of the managers. I asked him what he tells concerned fund trustees and other investors who are worried about the volatility of the current stock market.

"I tell them that there's nowhere else to go, what with fixed-income investors losing money, and I tell them that it makes sense to get into the stock market before April when the next round of good corporate earnings come out," Mr. Navellier said with a confident smile based on his belief that the flow of funds is simply too strong to permit much of a market correction this year.

"This is a good time to buy because interest rates won't go much higher and the overreaction to them provides a good time to get in."

Over the past three years, MPT Review's model portfolio is up 93.5 percent to outperform the overall small-stock market, according to the Hulbert Financial Digest. But that isn't as robust a performance as prior to that point because strategies based on earnings momentum and growth were less effective during that difficult economic period. Since Mr. Navellier's recommended small-company stocks corrected at the end of last year, he doesn't believe it will happen again this year. He refuses to join the doomsayers.

"I'd estimate that about 65 percent of investment letters are negative about the market right now, while only 30 percent of actual money managers are negative," Mr. Navellier said. "Quite frankly, pessimism sells more newsletters."

In cyclical stocks, he likes Armstrong World Industries, Clark Equipment, Caterpillar Inc., Lowe's Cos. and BMC West. Among automotive-related equities, his selections are Autocam Corp., Gentex Corp., Lund International, Magna International and Superior Industries.

His favorite in specialty retailers is Williams-Sonoma; in furniture, Bush Industries and Rowe Furniture; in telecommunications, Tellabs Inc., DSC Communications and Newbridge Networks; in semiconductors, Micron Technology; and, in ADRs, Telecom Corp. of New Zealand.

A one-year subscription to MPT Review, P.O. Box 10012, Incline Village, Nev. 89450, costs $225 for 12 editions.

One of the biggest problems confronting investors these days is the increase in individual income tax, Mr. Navellier added, which will result in a continued boom in tax-deferred annuity products. Introducing the Navellier Aggressive Small Cap Fund through the Rushmore fund family in May, he intends to also make it available in a variable annuity product.

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