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U.S. stocks regain some of their lustre


Last year, fund manager Ian Riach was lowering U.S. exposure in the Bissett Multinational Growth Fund. This year, he is doing the reverse, adding a little.

"The reason for that is that we have been finding that growth rates in the U.S. are as good or on some U.S. names ... maybe a little bit better than what we are seeing internationally," said Mr. Riach, who co-manages the fund with Fred Pynn. "And the valuations for a lot of U.S. multinationals are just looking a little bit better than some of the international ones," he added.

Currently, 23 of the stocks in the fund are U.S. issues, another 15 are American depositary receipts and three are Canadian. Bank of Nova Scotia, Manulife Financial Corp. and Canadian National Railway Co. represent the Canadian complement. Although U.S. multinationals predominate, slightly more than half of the revenues of the multinationals in the fund are generated outside of the United States.

The ADRs are from a variety of countries, most notably Britain. But other European countries are also represented as are Japan and Brazil, the latter through Companhia Vale do Rio Doce (CVRD), which last year acquired Inco Ltd.

The volatility that has enveloped the markets the past several months has created a situation where multinationals are likely to shine, Mr. Riach said. "In times of volatility, large-cap, dividend-paying stocks tend to outperform; they have steady earnings growth because of their vast diversified operations," he said. The fact that such companies are able to increase their dividends also helps.

Some financial service companies have taken it on the chin in the recent turbulence. That has created what Mr. Riach, taking a long-term view, considers are attractive valuations and yields on some of the large money-centre banks in the United States, Britain and Europe. The $196-million fund is up 3.06 per cent over the 12 months ended Sept. 30 and 2.62 per cent over the past five years annualized. Returns in the unhedged fund have been hit by the rise in the Canadian dollar.


McDonald's Corp. (MCD-NYSE) caught Mr. Riach's attention a little more than a year ago when the company raised its dividend by about 50 per cent. It has since done that again. He said the fast-food restaurant chain has been managing the capital on its balance sheet more efficiently - selling off corporate-owned stores, franchising them out and using some of that money to invest in developing markets around the world. "The U.S. was fairly saturated; so they have been allocating capital to higher-growth areas," he said. McDonald's closed yesterday at $56.96 (U.S.) in New York.


ConocoPhillips (COP-NYSE) has also been allocating its capital more efficiently in the past few years, Mr. Riach said. He noted that Conoco sold off the grocery store operations attached to its service stations so it can concentrate on its refining activities and developing its upstream operations. He also noted that the energy company has made several acquisitions over the past several years. They are a very consistent dividend payer, having paid one each year for 20 years, he added. And it has boosted the dividend for each of the past seven years. Conoco ended yesterday's session at $87.46.


Canon Inc. (7751-Tokyo; CAJ-NYSE), is another core holding. The Tokyo-based camera, and office equipment supplier began restructuring its operations about five years ago in order to become more cost efficient, Mr. Riach said.

"They started putting production facilities closer to the markets that they serve," and that also helped with currency management as well, he said. Canon generates 75 per cent of its revenue outside of Japan. "Now, they are really reaping the benefits of that," he added. He also noted that Canon has raised its dividend every year for the past 11. The ADRs are trading at $51.71.

© 2007 The Globe and Mail. All rights reserved.

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