What's the story behind the international companies in our portfolios? Nate Weisshaar examines seven of our largest holdings.
What’s a DuzonBizon, anyway?
Way back in 2008, when the Independence Fund was first being dreamed up, your investing team wanted to create a mutual fund that could go wherever it needed to in order to generate market-beating returns for our shareholders — you!
Like stubborn 6-year-olds, we planned to build a portfolio of great companies and NO ONE was going to tell us what size they had to be or where they called home.
Along the way, we built a portfolio that contained companies that aren’t exactly household names – at least here in the United States.
So while we greatly appreciate and are humbled by the trust you place in us, we wouldn't be offended if you found yourself skeptical about some of the less familiar names in our portfolios.
I mean, what exactly does a DuzonBizon do?
For this month, we thought it might be a good idea to introduce you to some of the less familiar names you own, so you can better judge for yourself how we’re doing.
As a starting point, consider this. As of the end of February, 27 of the 56 stocks in the Motley Fool Independence Fund (Ticker: FOOLX) were considered foreign companies, and 18 of those are what could be considered emerging-market companies.
I’ll focus on the seven foreign(-ish) companies in the top 11 holdings overall. We can look at the others at a later date.
A Focus On Foreign Banks
Three of our largest foreign holdings are banks. We think banks are good ways to get exposure to markets because they are closely tied to their countries’ economies. If an economy is growing rapidly, its banks should be doing pretty well. Of course it works the other way, too, so we try to find banks with top-notch management teams.
India’s HDFC Bank is one of the best performing and rapidly growing banks in the world, and its management team has impressed us for years with its disciplined lending. Even as the bank grows 20% per year, it’s been selective in its lending and has maintained one of the strongest balance sheets in India.
Banco Latinamericano de Comercio Exterior – we’ll call it Bladex from here on out – is based in Panama and is very nicely placed, strategically and geographically, to grow as trade grows with and within Latin America.
Bladex is a merchant bank, meaning it focuses on short-term lending – almost three-quarters of its loans mature in a year – which helps grease the wheels of trade. While this isn’t the most profitable type of lending (credit cards are far more lucrative), it is relatively low-risk, and Bladex’s management team has proved to be more interested in delivering quality earnings, and a juicy dividend, than in building an empire. That’s just what we look for in our bankers.
Jumping back to Asia, BGEO Group is the parent company of Bank of Georgia, one of the largest banks in the small former Soviet state on the eastern shores of the Black Sea. It may not surprise you to hear that Georgia’s capital markets are relatively early in their development, and we look at our investment in BGEO Group a little like getting in on J.P. Morgan a century ago.
Now, don’t get me wrong; we’re not expecting Georgia to become the next U.S., nor will its capital markets expand as dramatically. However, we think BGEO’s ability to attract the best and brightest in the country will help us achieve our goal of competitive returns as it grows with the country’s financial sophistication.
Enough with the banks! Let’s talk medicine.
Much as it is in the U.S., healthcare is a growing industry nearly everywhere in the world, and we think the companies addressing the health needs of the world’s population should do pretty well in the years to come.
NMC Health is based in Abu Dhabi in the United Arab Emirates, and it’s the largest private healthcare provider in the country. NMC’s 30 facilities should see strong returns as they roll out new treatment capabilities and as their clients age.
Less exotically, we have Medtronic, which claims Dublin as its address for tax purposes but is really based in Minneapolis. It’s one of the world’s leading medical technology and device companies. Its portfolio of spinal and cardiac devices helps people live longer, more enjoyable lives – something we like from a human as well as an investing standpoint.
How about technology and innovation?
Another core investing theme we’ve got going is the progress of automation, be it robots or software (or both). In this arena we also have Fanuc, one of the largest robot makers in the world. These guys are helping automate iPhone factories in China and Ford factories in the United States. The company claims around 50% market share in robots domestically.
Fanuc isn’t just riding the automation wave; it’s living it. Its factories have used robot labor for years and today are some of the most automated you’ll find. This approach not only helps Fanuc work out the kinks in its products, but it also saves the company a lot of money and gives it by far the highest margin among its robot-making peers. A strong industry tailwind and top-notch profitability? We’ll take it.
And that finally brings us to DuzonBizon. This company started out writing enterprise resource planning software, which helps companies operate more efficiently. As with most successful software companies, DuzonBizon was able to generate very attractive profits off its products.
Then it went and did something completely crazy – at least according to the market. It spent $50 million on a data center. That may seem a little strange initially – a small software company doesn’t need a massive data center, even if it’s switching to cloud-based products (which it is). However, once the construction costs were spent, all DuzonBizon had to do was persuade people to rent the extra space in the data center, and it would generate strong profits for the company.
So far, so good – DuzonBizon continues to sign up renters, and the profit margin continues to expand. That’s the kind of crazy I can get behind.
The Bottom Line
We think it's possible to find solid investments in all shapes and sizes and in all corners of the globe. If you have any questions about the companies mentioned here, or about any other companies in our portfolios, send us an email at [email protected]. We'll answer your question in an upcoming column.