(The writer is a Reuters contributor. The opinions expressed
are his own.)
By Chris Taylor
NEW YORK, March 21 If you think picking stocks
in a single country is tricky, imagine if your job is to find
winners and avoid losers around the world.
You'd have a big menu to select from, but that could also be
a major drawback. Chaos in the Ukraine? Riots in Thailand? You
need to be on top of how it will affect portfolios.
Greg Dunn faces such challenges every day as co-manager of
the $1 billion Thornburg International Growth fund,
which won a 2014 U.S. Lipper Fund award for its 3- and 5-year
performance in the International Multi-Cap Growth category this
year from Lipper, a Thomson Reuters company. The fund racked up
23.5 percent 1-year gains through mid-March, clobbering its MSCI
EAFE benchmark that lagged with 13.69 percent returns.
"We are bottom-up oriented stockpickers. By focusing on
finding good businesses, you don't have to pay a ton of
attention to what's going on in the macro sense," says Dunn, who
first managed domestic portfolios before taking on international
markets at Thornburg.
In recent years, the fund, managed by Dunn and Tim
Cunningham out of Santa Fe, New Mexico, has found those values
in the United Kingdom (24 percent of the fund's portfolio, as of
the end of January) and Canada (9.7 percent). The managers are
also not afraid of dipping into emerging markets, with 5.5
percent of the fund in Brazilian stocks and 4.2 percent in
Top holdings include Mastercard Inc and Valeant
Pharmaceuticals International Inc. Another favorite
pick: PriceSmart Inc, the largest operator of
membership warehouse clubs in Central America and the Caribbean,
which is up almost 40 percent over the past year.
WHOLE CATEGORY GROWING
Despite the wildfires seemingly lighting all over the globe
these days, the international equity category's robust returns
have definitely attracted investors' attention - in large part
due to an extended era of fragile domestic growth.
By the end of 2013, total assets in the category had leapt
to $1.4 trillion, according to Lipper. That included inflows of
$105 billion in 2013, the category's best year ever for
attracting new cash, and a figure that crushed every other
So far this year inflows have continued apace - despite a
significant emerging-markets swoon in which Vanguard's Emerging
Markets Stock Index ETF fell by 10 percent over the last
year - with another $18 billion being added to the coffers.
"With more stability in the euro zone, as well as economic
recovery in places like Japan, there has been a nice bounceback
for international funds in both 2012 and 2013," says Todd
Rosenbluth, director of mutual fund research for S&P Capital IQ.
One potential worry: Since international equities have
notched some very impressive years, attractive values could get
harder to find.
But fund managers say that despite the run-up, they are
still managing to locate promising companies at the right price.
"Earnings growth has gone up a lot too, so price multiples
have not actually changed very much," says Mark Yockey, one of
the portfolio managers for $12.2 billion Artisan International
Fund, another of this year's 2014 U.S. Lipper Fund
Some of the top names in Yockey's portfolio: Chinese search
engine Baidu Inc and German pharmaceutical giant Bayer
AG. The geographic split breaks down to 18 percent of
holdings in German companies, 21 percent in the UK, 10 percent
in Switzerland and 12 percent in Japan.
The result is 1-year returns of 18.27 percent, and
eye-popping 5-year returns of 22.58 percent.
How has the fund managed such consistency, in foreign
markets that can sometimes be wildly volatile? Yockey singles
out the taste for long-term, secular investment trends which
will not be altered by the headlines of the day.
"That could mean anything from the growth of the
emerging-markets consumer, to environmental issues in Asia like
cleaning up Chinese pollution, to expanded broadband around the
world," he says.
The Thornburg and Artisan international funds offer an
intriguing contrast in their approach to international
investing, notes S&P Capital IQ's Rosenbluth.
Thornburg International Growth tends to include more small-
and mid-cap names, and concentrates on fewer sectors, while
Artisan International sticks more to megacaps and spreads its
bets between more industry sectors.
But even for bottom-up stockpickers who are focused on
balance-sheet fundamentals, it is a troubling world out there
that remains impossible to predict. In that way, the task of an
international fund manager can be likened to walking through a
"There are problems in Egypt, problems in Turkey, and almost
everyone seems to have problems with their currencies," admits
Thornburg's Dunn. "So there are definitely pressures out there.
All you can do is own the highest-quality companies you can
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Editing by Beth Pinsker and Richard Chang)