David Winters: Why He Loves Stocks (and Canada too)

On this week’s Consuelo Mack WealthTrack, “Great Investor” David Winters (former CEO, Franklin Mutual Advisers, circa pre-2005) explains why his go anywhere, invest in anything Wintergreen Fund (fund manager of Renaissance (CIBC AM) Global Markets Fund) is following the money by investing nearly 90% in stocks and 65% overseas.

Winters loves stocks, and he describes why his non-U.S. portfolio exposure has more than doubled in the past five years, which country is currently his favorite, why he thinks M&A is about to take off, which industry makes up almost 20% of his portfolio, and what he thinks the market is missing in Nestlé, Swatch, Schindler and Richemont.

The transcript for this video follows below:

Consuelo Mack WealthTrack interviews David Winters - October 29, 2010

CONSUELO MACK: This week on WealthTrack, while other investors flee stocks for the comfort of bonds, our Great Investor is embracing them. Wintergreen Fund’s David Winters on why he loves stocks is next on Consuelo Mack WealthTrack.

Hello and welcome to this Great Investor edition of WealthTrack. I’m Consuelo Mack. Investors, both big and small, are fleeing stocks, particularly large cap U.S. ones. And the trend is stunning and shows little sign of abating. Over the past three years, net new cash inflows- that’s the difference between money coming in and money going out of stock mutual funds- have grown from a trickle of selling to a flood. This chart of net new cash flows into domestic stock funds from Bianco Research shows the magnitude of the nearly $180 billion dollar stock selling stampede since 2007.

The story is the exact opposite in bond land. As you can see from this chart, net new cash inflows into domestic bond funds have soared, particularly in the past year, as bond yields have fallen and prices have risen. This stock-bond dichotomy is also playing out among big institutional investors. A recent Wall Street Journal article noted that pension funds are joining the stampede in “search of less-risky bets;” their asset class of choice is also bonds.

But are bonds less risky than stocks, especially after the big run up they have experienced since the financial crisis? Legendary investor Warren Buffett was recently quoted saying he “can’t imagine” the rationale for adding bonds to your portfolio at current prices and that to him it is “quite clear stocks are cheaper than bonds” now.
That is exactly the sentiment of this week’s Great Investor guest. Wintergreen Fund’s David Winters launched his go anywhere, invest in anything fund five years ago. Since then the value-oriented fund has handily beaten the S&P 500 and the MSCI World Index. Winters, who has been named one of the “World’s Greatest Investors” by Smart Money magazine is not hedging his bets right now. His Wintergreen Fund is about 90% invested in stocks, 2/3rds of which are foreign based companies. Winters believes the global economy is in the midst of profound shifts with huge ramifications for investors. I asked him what has changed.

DAVID WINTERS: The power is shifting from the Western world to the Far East. And you know, we're still very relevant. But the cutting edge of wealth creation is happening in Asia. And that's very different from the world in which I grew up in and that most of us have grown up in.

CONSUELO MACK: Now this change, it's been coming along for a number of years. But you tell me it's accelerated through the financial crisis. What changed during the financial crisis that really has accelerated this shift in economic power?

DAVID WINTERS: Well, you've had the West go down. And you've had asset values collapse and a lot of debt. You had an ongoing debt crisis. And you had continued prosperity in Asia. So the differential has widened and so you have prosperity in Asia generally. And the West is mired in a severe recession and debt liquidation. And so you know, as Wayne Gretsky would say, "You got to skate to where the puck is." And the puck is increasingly outside of North America.

CONSUELO MACK: So how lasting do you think this shift is going to be and the scary question from, you know, a U.S. citizen's point of view, is the gap going to keep widening between us and them? Or do you see us coming up and at any rate, you know, gaining some momentum?