Q&A Series

Our ongoing Q&A series features Carillon Tower affiliate managers sharing their diverse investment philosophies and thoughts on the market.

Michael Stack, CFA Q&A with Michael Stack, CFA
Lead Portfolio Manager, Scout International Equity, Scout Investments

How has COVID-19 changed the landscape for international investors?

Virus-related lockdowns drove most economies into recession in the spring of 2020. In response to the sharp increases in unemployment and cessation of most industrial activity, unprecedented monetary and fiscal stimulus were enacted. Countries have had varying levels of success in identifying and isolating cases of COVID-19. It is only in hindsight that we will truly know what worked best in fighting the pandemic.

Amidst the turmoil, international investing still makes sense from a number of perspectives. Diversification is important to help reduce risk, and investing internationally opens up a greater opportunity set. Furthermore, investment cycles can occur over large time frames. But they still tend to be cycles. Since the Global Financial Crisis of over 10 years ago, the U.S. has outperformed international markets. However, in our view, it is hard to see that cycle repeating over the next decade, which may present an attractive entry point for international investing.

PHILOSOPHY: What does the Scout International team believe?

We believe that a portfolio of high-quality companies, purchased at attractive valuations, and held for the long term may outperform. High-quality characteristics we seek include: high return on equity (ROE), stable earnings growth and low financial leverage. Valuation methods include analysis of historical data as well as peer metrics. Understanding the value of a stock helps us have a better appreciation for its potential. Historically, high-quality stocks tend to outperform their benchmark indices.

PROCESS: How does your team choose stocks?

A fundamental research program supports the Scout International Equity Team’s search for long-term ownership of quality companies with long-term growth tailwinds. The team uses a diversified, benchmark-aware strategy that invests in companies based on their fundamentals and quality characteristics while paying due consideration to the valuation.

PROSPECTS: Why invest internationally now?

Correlation — measures of how different markets move relative to one another – remain attractive, despite being on the rise again. From a technical standpoint, any correlation of less than 1.00 between the MSCI EAFE (Net) Index and the S&P 500 Index can provide potential opportunities for international investors. Lower correlation can also allow active managers to showcase the possible rewards of strong stock selection.

A valuation gap has emerged between the MSCI EAFE® (Net) Index and the S&P 500 Index since the Global Financial Crisis. Domestic U.S. equities are now richly valued – some may say over-valued – while international equity valuations appear to be more reasonable. The gap that has emerged between the forward price-to-earnings ratios of the S&P 500 and the MSCI EAFE® (Net) Index may indicate that international equities are poised to outperform domestic equities.

Correlations Remain Attractive
Correlations Remain Attractive

As of 3/31/2020 – Source: Bloomberg

Valuation Gap Emerging
Rolling Forward P/E Ratios
Valuation Gap Emerging Rolling Foward P/E Ratios

As of 3/31/2020 – Source: Bloomberg


The Scout International Team seeks to outperform the MSCI EAFE Index over a full market cycle (three to five years) with less than commensurate risk.

The team constructs diversified portfolios consisting of established companies domiciled outside the United States, or whose primary business is conducted outside the United States.

ABOUT Scout Investments

Scout Investments’ independent equity investment teams take a selective approach, using rigorous research and analysis to seek out high-quality companies and patiently pursue long-term capital appreciation for clients. Our thoughtful approach to asset management extends to cultivating lasting partnerships with our clients.

To learn more about Scout Investments click here or contact us at 800.521.1195.


Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that when redeemed, may be worth more or less than their original cost.

International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries, where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.

Growth companies are expected to increase their earnings at a certain rate. When these expectations are not met, investors may punish the stocks excessively, even if earnings showed an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns. The companies engaged in the technology industry are subject to fierce competition and their products and services may be subject to rapid obsolescence. The values of these companies tend to fluctuate sharply.

Graphs or other illustrations are provided for illustrative purposes only and not intended as a recommendation to buy or sell securities displaying similar characteristics.



MSCI EAFE® (Net) Index: The MSCI EAFE® (Net) Index measures the performance of performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada. The MSCI EAFE® (Net) Index subtracts any foreign taxes applicable to US citizens but not applicable to citizens in the overseas country. It is not possible to invest in an index.

S&P 500 Index: The S&P 500 measures the value of stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq Composite. It is not possible to invest in an index.

CTA20-0396 | Exp: 12/31/2020