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Magazine Cover by Daren Fonda, Reshma Kapadia and Russell Pearlman
Award-Winning Funds: Foreign Funds
Editor’s note: With the markets offering up a seemingly endless parade of surprises, investors are looking for mutual-fund managers who can handle anything thrown at them. In this special report, SmartMoney focuses on funds run by managers who have successfully navigated years worth of market euphoria and panic - and helped keep investors ahead. We highlight funds that specialize in five categories: large company stocks, foreign stocks, global investments, balanced investments and real estate.
It sounds ridiculous, a manager of foreign stocks not allowing his fund to invest in two of the fastest-growing economies on earth. But Jim Moffett, manager of the $5.1 billion Scout International fund, has held that stance on Chinese and Russian firms ever since he started it, nearly two decades ago. Moffett says a lack of legal rights for shareholders is more than enough to keep him away. Some fund shareholders might grumble at his rule, but they can’t complain much about the fund’s performance, up an average 6.5 percent a year for the past five years, more than twice the annual return for global stocks over the same period.
That Moffett, 68, even invests in foreign stocks is something of an accident. Back in the early 1990s, he was happily running U.S.-focused stock accounts in Kansas City, Mo., when one of his clients asked him if he knew anything about international stocks. Moffett, whose thesis at Harvard was on 19th-century relations between England and Argentina, admitted he didn’t, but he was intrigued. He gradually added foreign stocks that traded on U.S. stock exchanges to his portfolios. In 1993, Moffett’s bosses told him to start an internationally focused fund. A $10,000 investment in Moffett’s fund when it started would be worth more than $40,000 now.
Moffett and his team of six analysts start by looking for regions in which to invest, picking up much of their initial information from The Economist and other mainstream publications. From there, Moffett’s team separates “real countries versus the banana republics,” then digs around for companies. The fund still relies on foreign stocks that trade as American depositary receipts on U.S. stock exchanges, although it occasionally invests in U.S.-based companies like Mettler-Toledo International, a medical instruments firm with more than two-thirds of its sales outside the U.S.
The fund doesn’t have large positions in any one firm, a risk-limiting strategy that can also limit returns if one or two stocks soar. These days it owns several finance-related firms. HSBC Holdings and Australia & New Zealand Banking are top holdings. An improving global economy means higher profits for banks, Moffett says. He admits there are still trouble spots, but the banks he has bought have less competition than they did a few years ago. He’ll buy banks only in areas where banking regulations are tightly enforced.
Winner
Scout International (UMBWX)
Managers: Jim Moffett and
Gary Anderson
Assets: $5.1 billion
Expenses per $10,000: $102
Minimum investment: $1,000
5-Year avg. annual return: 6.5%
10-Year avg. annual return: 3.9%
Quick Take: Holds large-cap stocks and sticks mainly to developed markets such as Western Europe and Japan.
Runners-Up
Thornburg International Value (THGCX)
Managers: William Fries,
Wendy Trevisani and Lei Wang
Assets: $18.3 billion
Expenses per $10,000: $206
Minimum investment: $5,000
5-Year avg. annual return: 5.9%
10-Year avg. annual return: 5.1%
Quick Take: Invests in a blend of large growth and value stocks.
Columbia Acorn International (ACINX)
Managers: P. Zachary Egan and Louis Mendes
Assets: $4.6 billion
Expenses per $10,000: $96
Minimum investment: $2,500
5-Year avg. annual return: 8.2%
10-Year avg. rnnual return: 3.7%
Quick Take: Scours markets for small and midsize overseas companies growing fast.
15 Award-Winning Funds
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