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MUTUAL SERIES FUNDS'
MICHAEL PRICE ET AL.
(continued from preceding
page)
These companies are trading at enormous discounts. The Wallenbergs are a slightly well-known family in the Swedish home market. (Actually they are the family in Sweden.) Investor, their holding company, has compounded 20% a year for five years, 10 years, 15 years and 20 years. And yet it trades at a 45% discount.
They're incredibly smart.... They're well represented in pharmaceuticals, in telecoms and in forestry.... And we can buy their assets and brains at an enormous discount.... Again, it's the largest tree in Sweden. We're shaking it very vigorously and finding many ... opportunities as a result.
AT 60-70% OFF, IT MAKES INVESTMENT SENSE, TOO.
We knew that the Eurotunnel made sense business-wise. And at 30¢ on the dollar, it made sense investment-wise.
Shareholder:
What about Eurotunnel?
Price:
Eurotunnel cost £10 billion to build.
It's probably worth £5 or £6 billion. And we basically paid
about £4 billion for it by buying the defaulted bank debt.
We bought it knowing that the Eurotunnel does make
sense, that people like to use the train or the trucks to get
their goods and people across the Channel and that it's
going to stay in business.
Price: [Therefore], it's just a matter of restructuring
the balance sheet. By buying the debt at 30¢ - and it's
now trading at 40¢ - we create the restructured company
cheaply (equity and debt). So we own a lot of Eurotunnel.
AND IF EUROPE UNIFIES IT, WE'LL HEDGE IT, TOO.
We hedge out currency risk via forward contracts. If Europe unifies its currency, we'll just hedge it, too.
Page 13 of 28
Shareholder: How do we protect ourselves against
currency swings?
Price: We made the decision that we're stock pickers,
not currency experts. But when you buy a foreign stock,
first you have to buy the local currency to pay for the stock.
So, every night, you have to see where your stock closed.
But you also have to see where the currency closed versus
the dollar because we have to translate the position back
into dollars because our funds are quoted in dollars.
So we hedge currency movements out of the
performance of the fund using forward contracts. We buy
a contract for the same amount of that local currency that
moves and it counteracts all of that currency move.
The cost runs about 1% annually. In some countries,
we actually earn a little money on the contracts. It
depends on the interest rate differential and the liquidity of
the currency markets [in each country].
Shareholder:
Could you or Rob [Friedman] comment
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