Japan does offer a pointed contrast between fundamental investors scouring balance sheets and macro-watchers divining buy signals from economic conditions and central bank policies (like those spurring Japan now). Hartch's BBH Global Core Select Fund launched in April, so there is no past performance to measure it against. But Hartch says he sticks to a disciplined investing pattern and says that "on balance, Japanese companies have very poor returns on capital, and they make weaker capital allocation decisions." It's "pretty rare," he says, to find companies that meet his criteria there, especially after Japan's market has risen 60 percent since the start of last year.
The investing strategy the new BBH fund follows is an extension of the one it followed for years with is large-cap funds, which have managed annual returns of 18 percent to 20 percent over the past three years and have consistently earned "low risk" ratings from fund tracker Morningstar. Morningstar analyst Russ Kinnel recently cited BBH as one of his favorite fund groups for its "good old-school focused, high-quality" investing style.
As part of BBH's disciplined approach, Hartch says he keeps a close watch for "when valuations get too high." Recently, he says the firm "trimmed some positions" because they were "getting stretched everywhere, including the U.S. market." The BBH large-cap funds are holding cash levels of between 7 percent to 10 percent, according to company data.
Global funds keeping high U.S. holdings. Overall, global large-cap funds have kept 45 percent of their investments in the U.S. market for the first half of the year, Lipper data shows. That's four times the level of the next biggest market, the United Kingdom. Despite the rise in U.S. stocks, the American market is still more attractive, given the slowdown in China and Europe's long struggle to show gains.
"The benefit of global funds is that when things get worse internationally, they can keep piling into the U.S. market," says Lipper research director Tom Roseen.
That strategy has worked over the past two years in terms of performance and fund flows, and is a big shift from the 2000-2010 decade when emerging markets, especially the BRICs, were lifted by China's powerful growth and helped by a weakening U.S. dollar. Those two key factors have flip-flopped this year. The dollar is strong. China is weak.
"The story now is that U.S. stocks are not overvalued after this year's really," Young says. "They are reasonably priced. The only place that's really cheap is emerging markets. But they're cheap for a reason. They face a lot of challenges."