Banking sector volatility prompted Oakmark's fund managers to address the issue in an August website posting to their customers. "Like everyone else, we are unsure when the market volatility will end. We believe, however, that our holding of select European financials with strong profitable franchises, formidable balance sheets and very attractive valuations will not only be survivors, but will improve their competitive positioning and build shareholder value," David G. Herro, portfolio manager and chief investment officer of international equities, said in the letter.
"We remain disciplined and are closely monitoring the ever-changing global equity market situation. We are ready to exploit the short-term dislocation in the share prices of quality businesses, no matter the sector they operate in," he said.
Oakmark is focusing on banks with less capital-intensive businesses, such as asset management or advisory. Its holdings also include banks with strong deposit franchises and liquidity, which would have a funding-cost advantage over wholesale-funded banks and be better-positioned during times of crisis. It also favors banks with significant scale and diversification that would allow for a more efficient cost structure.
Other fund managers remain hesitant to tread in the financial sector. "We really haven't owned any banks for quite a while, also because we've always been slightly uncomfortable about really knowing what we are buying when we're buying a bank," Columbia Acorn European Fund's Andreas Waldburg-Wolfegg said in a Morningstar video interview, available on the fund tracker's website.
"And then, secondly, when looking at companies that are exposed to specific drivers and have strong niches, when we go into German companies such as ElringKlinger, the maker of specialist equipment for diesel engines, where they have such strong market shares and where the global recovery in engine growth has been very beneficial for them. So, these are kind of things where we look at individual drivers for individual little companies," he says.
A company-by-company approach and careful placement of European investments among other international choices is advised.
"Don't give up on Europe," Palisades Hudson's Bergman says. "There are great franchises there. But don't over-allocate. You'll want to leave room in your international portfolio for investments in Australia, Canada, and the emerging markets. Those countries and regions have less fiscal debt; some are even running current account surpluses."
Corrected on 10/6/11: A previous version of this story misstated Jonathan Bergman’s location. He is in Scarsdale, N.Y.