PodcastExcess ReturnsColin McQueen

We Asked a $17B International Manager Why Value is Winning Again — and What the S&P 500 Leaves Out

The guest sees improving conditions for international value stocks in higher rates, inflation, and renewed demand for tangible capital, alongside governance reforms in Japan and South Korea. He points to cheaper international valuations and narrowing earnings-growth gaps, while cautioning that comparisons with U.S. indexes can be distorted by technology weightings. AI creates opportunities across the supply chain but requires substantial capital, and its winners remain uncertain; investors also face risks from currency reversals and changing rate exposure.

EquitiesEmerging MarketsMarket ValuationsInterest RatesArtificial IntelligenceCurrencies

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Key Takeaways

Japan and South Korea are pursuing shareholder-return reforms: Tokyo-listed companies trading below book value are expected to publish plans to maximize shareholder value, while South Korea's “value up” effort combines greater board responsibility and dividend-favoring tax changes. The guest notes that 70% of the Kospi still trades below book value, despite its run-up.

The guest estimates that 14–15% of international-market stocks are connected to the AI supply chain, including industrial suppliers, but says it remains uncertain which companies will benefit or be disrupted. He contrasts AI's ongoing data-center and GPU investment needs with some dot-com-era companies that generated cash and self-funded.

The guest sees AI potentially favoring incumbents with large customer-data holdings, with regulation adding to that advantage in financial services. He also attributes Europe's technology-company gap partly to a less developed venture-capital industry and greater barriers to scaling across countries than across U.S. states.

The guest says the move from deflation and negative or zero rates toward inflation and positive rates has improved the backdrop for value and banks in Europe and Japan; roughly one-third of the global bond market had negative rates during the earlier period. He reports that international value earnings growth rose from about 0.5% annually in 2010–2019 to about 4.5% from 2019 through the present, while U.S. value remained near 1% and 8%, respectively.

GEO-POLITICS

Tokyo Governance — The guest says Tokyo Stock Exchange rules require companies trading below book value to publish plans to maximize shareholder value. He says companies are selling excess real estate and cross-shareholdings and setting higher return-on-equity targets.

“So they've kind of set rules around listing and index membership that a board a company's board if you're trading below book value has to publish a plan for kind…”—

Korea Value Reform — The guest describes South Korea's government-backed “value up” effort as a shareholder-return reform. Boards have gained fiduciary responsibility toward shareholders, tax changes favor dividends, and companies are raising dividends and return-on-equity targets.

“been calling it value up so the government has started to get behind the idea of legislating for changes so boards of directors now have fiduciary responsibility towards shareholders for…”—

TECHNOLOGY

AI Supply Chain — The guest estimates that about 14–15% of international-market stocks are connected to the AI supply chain, including industrial companies supplying transformers and electrical goods. He says AI exposure extends beyond technology companies.

“I mean I think we today there's probably about 14 15% of the stocks in the international market that are kind of connected into the AI supply chain…”—

AI Winners Unclear — The guest says the market is still determining which companies will benefit from deploying AI and which may face disruption, although share prices are already reacting in anticipation. He says the outcomes remain uncertain and require further research.

“But I think the market is still in a discovery phase to figure out which companies are going to really benefit from putting AI to work which companies are going…”—

AI Capital Needs — The guest argues that AI growth is capital-intensive. Unlike some dot-com-era growth companies that generated cash and self-funded, AI requires continued investment in data centers and GPUs.

“I think there are a few differences in my mind. I think one interesting one is kind of in the capital intensity of the AI growth…”—

ECONOMY

Negative-Rate Drag — The guest says very low interest rates created a headwind for value and financials. He cites roughly one-third of the global bond market having negative interest rates and says low rates strained financial business models.

“It was kind of interest rates keep cutting interest rates keep cutting interest rates to the point where we were sitting with what a third of the world bond market…”—

Inflation and Banks — The guest says the shift from deflation to inflation has leveled the playing field for value, while noting inflation is probably not going back to zero. He says a move from negative or zero rates to positive rates creates a healthier environment for banks in Europe and Japan.

“I think it has changed the game…”—

MARKETS

Valuing Business Types — The guest says quality-compounding methods can help assess companies whose value rests on intangible assets such as brands and technology, while traditional hard-asset analysis may be less suited to an increasingly intangible economy. For cyclical, tangible-goods businesses, he assesses normal-cycle margins and returns, then brings the analysis back to free cash flow.

“But I began to see after all there was kind of a different thought process and it really applied very well towards companies based more around intangible assets kind of…”—

Value's Lost Decade — The guest says the value fund he joined launched into what was probably the worst decade for value since the Great Depression. He saw value rally in bursts without sustaining gains, while the tepid post-financial-crisis recovery—especially outside the U.S.—limited the usual rebound tailwind. The experience taught him to distinguish structural from cyclical reasons a business is out of favor.

“and I went and joined a boutique in the UK for Capital Partners to set up a value equity fund for them…”—

Tangible-Goods Tailwinds — The guest says supply-chain and infrastructure weaknesses exposed during COVID, reshoring, energy-transition and power-grid investment, defense spending, and AI are increasing demand for tangible capital. Suppliers have better margins and record-high order books, he says, while interest rates, inflation, and tangible-goods demand may provide durable tailwinds for value. He also says the international growth-value price-to-book gap had been wider than during the dot-com boom.

“We have a reshoring a kind of localization again of a lot of production, a lot of supply chains…”—

FORECASTS

Yen Reversal Risk — The guest says Japan's weak yen is a major tailwind for exporters, but cautions that because the yen is far from purchasing-power parity, it could move sharply the other way. He says investors should not treat current earnings and cash flows as given in perpetuity.

“We find opportunities sort of further down the spectrum, midcap, small cap. finding opportunities elsewhere in Asia as they're starting to do the same thing…”—

Colin McQueen's evolution as a value investor

Colin McQueen traces his path from UK deep-value investing through quality compounding to a broader approach combining both, and explains how a risk dashboard helps him size contrarian bets.

Why deep value struggled in the 2010s

He attributes value's weak 2010s to tepid recoveries, persistent deflation and near-zero rates that hurt financials, while internet platforms captured much of the economy's growth.

Higher rates and a more balanced opportunity set

McQueen says inflation, higher rates, tangible-capital spending and Asia's restructuring have improved value's opportunity set, especially for financials and industrial suppliers.

International value, financials, and AI suppliers

He links international value's relative strength to fewer mega-cap intangible businesses, greater financial and industrial exposure, Japanese asset releases, and AI-related memory and component demand.

AI versus the dot-com era and managing valuation risk

AI differs from the dot-com boom because its growth requires continual capital investment, but incumbent data advantages complicate disruption forecasts; he values businesses on cash flow and avoids concentrated exposure.

Free cash flow, restructuring, and AI-assisted research

His process estimates normalized free cash flow, downside and restructuring potential, while AI tools can accelerate research and challenge portfolio managers to reassess failing investment theses.

Comparing US and international valuations

International stocks remain cheaper across most industries, though US technology weightings distort headline comparisons; narrowing earnings-growth gaps also support international markets.

The risk dashboard and changing European markets

Macroeconomic changes influence portfolio construction, but the risk dashboard primarily measures valuation spreads rather than predicting events; McQueen also notes improving prospects in parts of Southern Europe.

Corporate reform and opportunities in Japan and Korea

Japanese exchange pressure has prompted shareholder-value plans, asset sales and better capital returns, while McQueen is trimming large Japanese holdings and watching yen-reversal risk.

China, Asia ex Japan, and financial stocks

He sees selective contrarian opportunity in China despite weak domestic demand and governance risks, favors Korea's still-cheap companies as reforms progress, and finds attractive returns in global financials.

Global connections and why a stock market isn't an economy

Markets remain linked through US demand and investment flows even as trade and strategic supply chains fragment; listed companies span economies, and index-driven selling can create stock-specific opportunities.

Diversification and researching corporate turnarounds

McQueen prefers a diversified portfolio of roughly 100–150 stocks, which lets his team use its research platform, manage factor risks and monitor restructuring cases such as Rolls-Royce.

Looking beyond quarterly earnings and extreme narratives

He prioritizes long-run business value over quarterly earnings and advises investors not to trust extreme bullish or bearish narratives, which often follow share-price movements.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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