IVA's de Vaulx Likes Astellas Pharma: A Great Bargain (Audio)

a gain of three tenths of one percent. Cow Industrial is up twenty three points to eighteen thousand, five hundred forty, a gain of one tenth of one percent, as stack up thirty one points to five thousand sixty one, a gain of six tenths of one percent. Ten Yere down eleven thirty seconds, zeal there one point five eight percent, Gold up to fifty ounce to thirteen thirty a gain

of two tenths of one percent. And crude oil towns seventy cents of arrol forty five twenty six right now on West Texas ITEMDIA crude at as a drop of one and a half percent. I'm Charlie Pellett. That's a Bloomberg Business Flash. Thank you very much, Charlie Pellett. It's time now, for the e t F report. It is brought to you by National Realty Providers of Satisfaction Guaranteed New York City Realty Investments. See them at n r I A dot net. Let's go to Katherine Cowdery and

get the e t F report. Investors flocked to riskier assets last week, reflected in the e t F industry. We saw tons of money fly into the most popular e t F s used by the trading crowd UM s p Y, the queues IWM, and emerging markets. Bloomberg Intelligence analist Eric Baltuna says emerging market equity e t s We're on fire. They took in four billion dollars.

He has that institutional investors are diving into e M, the I Shares MSCI Emerging Market e t F, which attracted two billion dollars in new assets during the week. The reason we know it's institutions is because e M Traditionally it trades a ton like three billion dollars a day, but it's very expensive. Most advisers in retail have switched to using I e MG, which is the I Shares newer model, which is sixteen basis points in terms of fee, whereas e M sixty nine. But it trades so liquid

that institutions just, you know, that's what they need. This what they want. I E MG as e I Shares, Core, MSCI Emerging Market CTF IT two gained assets last week one billion dollars worth. That's your Bloomberg ETF report. I'm Catherine Cowdery. You're listening to Taking Stock with Kathleen Hays and Pim Box on Bloomberg Radio. Gold behold gold and it's year to date increase? What will push gold prices higher? Well,

for that and other questions, we have Charles Davout. He is the chief investment officer for International Value Advisers, helping to manage more than eighteen billion dollars in customer assets. Charles joins us in the studio today. Charles, thanks for coming and appreciate it. Let's begin by just understanding exactly why it is that you own what about six and a half percent of the portfolio and gold right now. Well, Pain,

that's because we run long only mutual funds. Yet our goals are to try to deliver, if possible, every calendar year positive absolutely returns. Yet we do not short, we do not use leverage and so to have as a tool gold, which more often than not, not always, but more often than not, can go up when stocks or bonds go down, and vice versa, is a wonderful is a wonderful tool. It often acts as a hedge, all right, It acts as a hedge, a hedge against the clients

in equities and the clients in bonds you describe. Yes, you know, short term, but in the longer term. It also has been a great hedge against the debasement of currencies. Over time, things there's been inflation, and over time gold has held its purchasing power, so it's been a wonderful

hedge against inflation. Also, let's not forget that gold has can be a wonderful hedge is deflation During the thirtiest banks when bankrupt and so you your money at the bank was not safe with gold, there is no counterparty risk. Gold is not an IOU. So it's also a wonderful tool to have when there's too much debt in the world and and there's a risk of deflation. So can we link this to a wider strategy or a wider

perspective that you have on global investment landscape. Yes, basically, today you know, thanks to quantitative easing, ultralow interest rates, manipulated rates, interest rates which either in nominal terms or adjusted for inflation, are negative. It's wonderful to have gold in your portfolio, which uh doesn't cost you anything. If you a third of all government bonds outstanding have negative yields to maturities gold with gold, you don't have a

negative yield to maturity. There's something to be said for that. Now. You also, in addition to your gold position, you have of your assets in cash well and a little less than that. You know, thanks to Brexit, we've been able to put some of the cash to work. So I believe now it's closer to thirty six six or which is still sizeable to say the least. And the reason is that we'd rather hold cash than force ourselves to

buy or hold overvalued securities. And yet around the world we feel that most stocks and bonds are price for perfection, to say elegantly. To say it less elegantly, I would say that they often are at nose bleed valuation level. And so to hold cash which cannot go down when the stocks and bonds can go down is is a great thing. Also, more importantly, Let's not forget that cash

has huge optionality value. Now, when people say you're supposed to pounce when this blood in the street, supposed to buy low so that you can then sell high, you actually need cash to buy law. So the cash on which we are making no money today, in fact we're losing money after inflation, hopefully will help us by great

bargains in the future. Now, in addition to having the cash that may be available, you also have to have the discipline to hold cash, particularly when you may have investors who say, well, I can hold cash, I don't need to pay you, or I don't need to have a fund that holds cash. Comment on that absolutely, which is why it's very important to have the right client base.

The overwhelmed majority of our clients, many of which come to us through financial advisors, and we do have a few institutional investors, what they expect from us is protection of of of the wealth. Ultimately, capal preservation is more important for them two become very rich. This is saying you only need to be rich ones. So in many

ways things are asymmetrical. Likewise, some of our clients are are not so rich, and you if you're not so rich, you cannot ord to lose the little you have, so which doesn't mean that you should not, um you know, own risky assets in your portfolio. It means that the risk reward has to be stacked in your favor for you to own risk assets. Which is why we value investors. We like to buy securities whenever they trade at what we believe is a is a big discount, a big

margin of safety. To use Benjamin Graham's words Benjamin Graham, the father of investing, we like to buy things at a discount so as to make sure that the risk reward is stacked in our and our clients favor. Is that consistent with the idea that you know you make it? For example, when you buy a home, you make your money really when you purchase the house, not when you

sell the house, but when you purchase it. Yeah, of course, and the irony play is that you you don't know it at the time, but absolutely the the altar, the most important variable determinant of the investment outcome is the price and and and the v I v A stands will value. And it's not because interest rates are low that we will uh, we will change at our weare of investing. We're speaking with Charles Davohe is the chief

investment officer for International Value Advisors. Just to note that the i v A Worldwide Fund is up about three and a half percent so far this year. The i v A International Fund, I believe is up more than two and that is with this gold holding and with your cash position. Speak if you can about those bargains or potential bargains that you may have seen in the United Kingdom because of the Brexit vote on June. Well, we've added to a stock which trades in the UK

called Millennium and Copthorn. Now they are a subsidiary of a Singapore Group City Development. They do own a few hotels in the UK, but overwhelmingly they're hotels are in Asia and a few in the US and on. If you look at the value of all the hotels they own, compare it to the share price, you'll notice that the stock is significantly undervalued. Tell me about Bank of America. They just released their results and it seemed as though the market is responding favorably. The shares are up about

three and three quarters of our percent today. Yes, we like the fact that Bank of America is very US centric, very little exposure to the UK or Europe or Asia for that matter, and we believe that they were trading way too cheaply relative to JP Morgan and Wells Fogo, which are perceived to be much better managed banks. And we believe that there's been tremendous cost cutting going on the Bank of America. There's a lot more to go.

The balance sheet is strong enough, and in the fullness of time, whenever that is, when interest rates finally go back up in the US, Bank of America will be a beneficiary of that. A Stella's Pharmaceuticals. Now, this is a Japanese based company, but it is really a global business. Absolutely. They it's a thirty five billion market cap company. It's a big company, although the name is not well known. And one of their leading products is Prograph, which is

an immuno supresident used to prevent organ rejects. And the company is has one very strong balance sheet, has net cash great, has a great pipeline of of products to come existing products, and they have a remarkably un Japanese capital education policy, meaning in a good sense, in the sense that they are willing to pay dividends and when the stock price is low enough, they're willing to massively buy back their own shares, so we and the stock. Even though the stock is has tripled over the past

six seven years, it's still a great bargain. Thanks very much for giving us some great ideas. Charles Devo is the Chief Investment Officer for International Value Advisors, helping to manage more than eighteen billion dollars of customer assets. This is Bloomberg. Yeah,