Investment opportunities in international auto markets
August 31, 2012
Finding opportunities in the international auto market is like trying to determine the best American cuisine: there’s no one correct answer, because each region has its own specialty. It is important, however, to recognize that there are auto manufacturers and parts suppliers that we believe are likely to outperform others.
The following paragraphs provide some insight, through the lens of the auto sector, into the types of complex decisions we are faced with across each of the sectors within the portfolios we manage. They highlight how we may look at a particular sector, including the type of company-by-company decisions we make to arrive at what we believe are the most appropriate investment options for each of our portfolios.
Technology: A durable investment theme
We believe it’s best to look at the auto industry by theme, rather than by geography. One theme we follow is technology. Specifically, we seek companies that produce the more profitable components of an automobile, such as enhanced electronics or features that increase safety, fuel efficiency, or passenger entertainment. These types of features are growing in popularity and typically involve proprietary technology, which allows manufacturers to charge a premium. We believe that companies involved in these segments of the auto industry are going to survive regardless of economic environment or geography.
We’ve found this to be the case in Europe, where the difference between strong and weak companies is as great as the difference between New England and Manhattan clam chowder. Even in economically stricken southern Europe, we’ve seen several manufacturers thrive. We’ve also identified several German manufacturers that we believe are strong, while French and Italian manufacturers, in general, seem weak to us.
Uneven opportunities in the emerging market
We view manufacturers in emerging markets countries as a mixed bag. In China, auto sales remain strong, particularly among pricier models. Likewise, Korean manufacturers continue to grow, with an emphasis on the export market. On the other hand, Latin American manufacturers remain generally weak, with Brazil dictating much of the growth in the region.
The bottom line is that when it comes to the overseas auto market and its many manufacturers and content providers, it is difficult to define success or failure by region. Rather, we look at the auto markets as we do all industries across the portfolios we manage and we believe that a company-by-company analysis of manufacturers and parts suppliers enables us to identify those we think are best positioned to benefit from improving auto technology.
The Delaware Investments Global and International Value Equity team seeks to anticipate and benefit from the significant volatility that typically occurs within international and developing economies. It employs a rigorous analytical process to identify favorable stocks in these economies.
Learn more about Delaware Global Value Fund and Delaware International Value Equity Fund.
The views expressed represent the Manager’s assessment of the market environment as of August 2012, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager’s current views.
Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 877 693-3546. Investors should read the prospectus and the summary prospectus carefully before investing.
IMPORTANT RISK CONSIDERATIONS
Investing involves risk, including the possible loss of principal.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors. Technology companies may be subject to severe competition and product obsolescence.
Investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances that occur after the date of this document.