George Evans of OppenheimerFunds talks about price targets, going against the market and the art of IR
George Evans is the chief investment officer for equities at OppenheimerFunds and the lead portfolio manager of the firm’s international growth strategy, which manages around $15 bn in assets. ‘Historically, we were a mutual fund company so we have a lot of retail money and small US investors,’ Evans explains. ‘But we also sub-advise some bigger organizations and have quite a few institutional accounts, so it’s a real mish-mash. It’s mostly long-term money, though, usually from individuals.’
 ‘We want to talk to some of the really good IR people: they’re hugely value-added and have an encyclopedic knowledge of things we’re interested in’ – George Evans, OppenheimerFunds |
His particular strategy is a vehicle for US investors to get exposure to non-US equities, mainly through overseas exchanges rather than ADRs. ‘There’s quite a few ADRs that trade reasonably well here in the US, but if the stuff I’m interested in doesn’t have an ADR or if an ADR trades thinly, we’re set up to deal locally and generally go along with the local listings, as they’re the most liquid,’ he says.
Clearly, this necessitates exposure to the full panoply of IR arts. ‘Beyond looking to get a mode of access to CEOs and CFOs, we want to talk to some of the really good IR people,’ Evans states. ‘They’re hugely value-added, with encyclopedic knowledge of things we’re interested in. And while they often deal with demands for data on short-term issues, they also have long-term orientations so we can get an exposition of the type of strategic views we are looking for.’
Evans’ information needs are not necessarily typical of demands on IROs. He takes a long-term approach, leaning toward a 10-year average holding period, which dictates the kind of information he is interested in from IR. That leads to an outlook that is more Buffet than broker-oriented. ‘I’m for a growth strategy,’ he explains. ‘I’m more interested in what the company is going to be doing on a five-year or longer basis, so we’re more interested in strategic issues than about how things might cut in the short term.’ That translates into ‘an interest in the long-term outlook of the company in a competitive firmament and its position globally. And then we try to understand how managements behave, how they allocate capital.’
Without being snobbish about IROs, such an outlook impels regularly going above them, which is easier because ‘we have a fairly large name and, being long term, we have a good reputation,’ Evans says. He considers the senior officers, usually the CEO and CFO, to be much more interested in answering questions about long-term strategy and much better equipped to deal with them, ‘rather than dealing with very specific information that has a much shorter-term relevance to it.’
His IR patronage covers both electronic means and the human touch, Evans says. ‘The internet and the availability of web presentations has allowed us to explore with greater granularity more of the basic issues of what a company is doing,’ he says. ‘It has really helped to understand the competitive structures, issues around products, what the product pipeline is and how things are evolving.’
Bargaining position
One particular example of the human touch, for which Evans is grateful, was with a drugstore chain whose deal to host a cut-price pharmacy firm had fallen through, causing flighty investors to ditch the stock. The IRO disclosed that, actually, statistics showed the customers who went to the pharmacy counter very rarely ever bought anything else in the store. ‘Everybody had assumed there was a huge multiplier, that you go to get your Viagra and your statins, and then boost sales in the rest of the store,’ Evans notes. He bought low, and the bargain hunting paid off as the market readjusted.
It is rare for Evans and his team to completely drop a stock. ‘It’s more a continual adjustment,’ he says. ‘About half of our trading activity is adding and trimming: adding to positions that have underperformed but in which we still have confidence for the long-term picture, or trimming positions where the performance has been strong and more fully captures the potential. We tend to be very measured in the way we trade around positions.’
For venturing into new fields or expanding positions, he points out that many excellent firms sell at rather expensive prices, but anyone who has been in the markets for a long time, or has studied stock market history, knows that on average every four or so years the market tends to have a negative manic-depressive moment when a lot of things go on sale.
‘Our view is that we know the price at which we feel the stock is attractive, and if it does not reach that we will stay on the sidelines,’ he says. ‘Conversely, we have a wish list of structurally attractive companies that we monitor: we want to buy good companies at bargain prices. These bargains occur when the market as a whole is in the middle of a manic-depressive phase, or when some stock-specific negative news hits the price. If the long-term thesis is still intact, such periods can present wonderful opportunities.’
Covering a global universe of companies takes organization, Evans admits. ‘Our team visits or has access to around 1,200 management teams,’ he says. ‘About 400 of those [visits] are via our offices in New York and about 800 are out in the various localities. In New York, the sell side offers us meetings with people it is chaperoning. Potentially we could buy large stakes so, with our reputation as a long-term holder, management teams are generally receptive.
‘Abroad, we go to conferences, in which case the people who have set up the conference set the agenda and we’ve got to cherry-pick which presentations we take. But there’s a lot of one-on-ones, so we visit several companies a day over a one or two-week trip. We’ll give most of them a wish list and they’ll say their CEO or whoever is coming along for the one-on-one or maybe a site visit, if that’s appropriate.’
Going against the grain
To exemplify the benefits of a countercyclical policy, Evans recalls the fate of luxury brand stocks immediately after the financial crisis. ‘They reached price levels where we thought they looked pretty inexpensive,’ he says. ‘The emerging market consumers – who are enormously significant buyers of luxury goods – stepped in, and their increase in demand was sufficient to keep luxury goods sales virtually flat for 2008. We were buying the luxury goods stocks because the prices were low and did not reflect our fundamental view of the potential for the next few years. In fact, most of them are up three to eight times in four years.’
With the emphasis on consumer goods and branding, there is more than just the companies’ numbers to consider. Clearly this goes beyond the indexes and broad brushstrokes, which is why Evans concludes that astute money management demands hands-on interaction with the firms.
‘Contact with management helps you to understand and have confidence in a company’s strategy, and there’s a lot less sensitive information because you’re not really angling for any shorter-term arbitrage advantages,’ he explains. ‘What we’re trying to understand is the bigger strategic competitive issues and we have to make a judgment call on how rational those are. We are trying to understand what the growth potential and profit structures are, deriving a long-term target and then working back from that to what the price is now: that’s how we operate.’
It is indeed the big-picture stuff that gives many IROs a lot of job satisfaction. Evans looks forward to hearing them explain it all.
