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NEW YORK 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 China.
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 equity category.
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 Award winners.
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 minefield.
"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 find."
(The writer is a Reuters contributor. The opinions expressed are his own.)
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Editing by Beth Pinsker and Richard Chang)