Managers of non-U.S. stocks staved off asset declines, even as the EAFE fell 15 percent.
By Rich Blake
July 2002
Before overseas markets began outrunning U.S. equities this year - the Morgan Stanley Capital International Europe, Australasia and Far East index is down about half of the Standard & Poor’s 500 index’s 12 percent decline through mid-June - European and Asian bourses offered money managers little sustenance. In 2000 and 2001 the EAFE posted back-to-back declines, off 15.2 percent and 21.2 percent, respectively. The S&P, meanwhile, fell 9.1 percent in 2000 and 11.9 percent in 2001.
Yet America’s largest managers of non-U.S. securities staved off major asset declines last year, as pension plans followed through on strategies that diversified their holdings out of domestic equity. The total assets this group manages on behalf of mainly U.S. clients fell a relatively modest $300 billion, down from $2.9 trillion in 2000.
With the weakening of the U.S. dollar, international proponents say, U.S. stocks will look less attractive, giving the foreign markets more potential to outperform. What’s more, many of these markets are cheap relative to those of the U.S.
Capital Group Cos., State Street Global Advisors and Axa Financial, among other money managers, boosted their foreign assets under management thanks to an inrush of new accounts. Capital Group gained $2.5 billion for a total of $231.5 billion, SSGA gained $61.4 billion for a total of $219.4 billion, and Axa added $8.8 billion for a total of $84.8 billion.
According to Mercer Manager Advisory Services, last year U.S. institutions doled out 159 active international equity assignments worth a combined $28 billion, compared with 145 placements totaling $14.3 billion in 2000. Among the biggest beneficiaries of this surge in activity: Capital, Fidelity Investments and Putnam Investments.
Steven Schoenfeld, head of international equity products at Barclays Global Investors in San Francisco, finds a new mind-set among pension plans investing in non-U.S. stocks. “Prior to 2000 there was a growing school of thought that said you could just invest in U.S. multinationals and get your foreign exposure that way. But most institutions are not only staying the course - they are adding to international equity,” he says.
One thing is certain: Active management delivers clear value in this arena. The 2001 median return for the InvestorForce EAFE universe of money managers was -- 19.35 percent, roughly 200 basis points better than the index. Active managers have outperformed the EAFE benchmark by about 4 percentage points per year over the past ten years - usually by underweighting Japan.
Still, two of the three largest managers of non-U.S. stocks are index shops - BGI and SSGA. State Street has seen especially keen interest in its enhanced index capabilities from pension funds looking to beat their bogeys, even if they still post negative returns. “Enhanced index is the hot style,” says Timothy Harbert, CEO of SSGA. That’s one reason his firm jumped from sixth place in 2000 to third place in 2001.
Beyond that, there was little change at the top in 2001. BGI took the No. 1 spot in the ranking, although the firm’s overseas assets dropped to $245.8 billion, from $272.7 billion.
Will investors in overseas stocks maintain their current allocation to the asset class even if the EAFE starts to underperform the S&P? “Possibilities for at least partial mean reversion and for a strong tactical opportunity to overweight non-U.S. stocks appear high,” says Michael Schoeck, senior principal at State Street Global Advisors. More plainly, he adds, “Now would be the worst time to retrench.”
The largest managers of non-U.S. securities
Rank 2001 Firm Non-U.S. securities Total assets under management ($ millions)
Total ($ millions) As percentage of total assets Equities ($ millions) Fixed income ($ millions)
1 Barclays Global Investors $245,800 31.98% $190,000 $55,800 $768,700
2 Capital Group Cos. 231,458 39.28 225,385 6,073 589,257
3 State Street Global Advisors 219,432 27.94 200,909 18,523 785,421
4 UBS Global Asset Mgmt 215,896 53.3 94,500 121,396 405,079
5 Merrill Lynch Investment Managers 183,235 34.66 141,091 42,144 528,701
6 J.P. Morgan Fleming Asset Mgmt 147,404 24.38 96,268 51,136 604,660
7 Franklin Resources 95,999 36.05 88,614 7,385 266,287
8 Axa Financial 84,812 17.63 54,482 30,330 480,994
9 Citigroup 82,044 16.32 37,030 45,014 502,641
10 Morgan Stanley Investment Mgmt 79,958 19.27 63,677 16,281 414,995
11 Putnam Investments 74,077 23.55 70,279 3,798 314,566
12 Fidelity Investments 68,441 8.02 62,835 5,606 853,542
13 Brandes Investment Partners 59,956 96.71 59,956 , 61,996
14 Goldman Sachs Asset Mgmt 56,402 18.43 36,590 19,812 306,014
15 Gartmore Group 44,853 58.31 35,376 9,477 76,926
16 Allianz Dresdner Asset Mgmt of America 44,117 11.52 29,471 14,646 382,953
17 Deutsche Asset Mgmt 41,146 17.29 35,954 5,192 237,946
18 Mellon Financial Corp. 38,964 7.25 33,422 5,542 537,294
19 Wellington Mgmt Co. 38,405 12.33 24,431 13,974 311,372
20 Lazard Asset Mgmt 38,073 57.93 34,681 3,392 65,717
21 Janus* 37,671 20.73 37,641 30 181,645
22 TIAA-CREF 33,003 12.36 23,465 9,538 267,050
23 Amvescap 27,481 8.28 26,254 1,227 331,745
24 T. Rowe Price Group 25,805 16.51 24,155 1,650 156,340
25 Schroder Investment Mgmt North America 25,147 81.18 25,128 19 30,975
26 Bank of Ireland Asset Mgmt (U.S.) 24,925 100 24,897 28 24,925
27 BNP Paribas Asset Mgmt 24,175 63.83 3,522 20,653 37,876
28 Legg Mason 23,868 13.57 7,015 16,853 175,873
29 MassMutual Financial Group 21,392 10.63 15,170 6,222 201,163
30 Principal Capital 20,014 19.85 11,772 8,242 100,833
31 John Hancock Financial Services 18,160 14.64 9,801 8,359 124,079
32 American Express Co. 16,170 7.48 14,027 2,143 216,127
33 BlackRock/PNC 15,503 5.49 9,519 5,984 282,550
34 Bridgewater Associates 14,629 83.77 69 14,560 17,463
35 Oechsle International Advisors 14,276 100 13,873 403 14,276
36 AIG Global Investment Group 14,085 9.77 3,818 10,267 144,145
37 Delaware Investments 14,022 17.36 11,549 2,473 80,788
38 GE Asset Mgmt 13,965 17.09 13,433 532 81,737
39 Grantham, Mayo, Van Otterloo & Co. 13,955 61.32 11,943 2,012 22,757
40 Old Mutual (U.S.) Holdings 13,760 9.18 7,489 6,271 149,891
41 Prudential Financial 12,537 4.45 9,057 3,480 281,416
42 Credit Suisse Asset Mgmt 12,082 17.45 9,719 2,363 69,221
43 Teacher Retirement System of Texas 11,516 14.73 9,078 2,438 78,179
44 ING Group 11,331 11.95 9,604 1,727 94,829
45 CDC IXIS Asset Mgmt North America 11,230 8.62 3,295 7,935 130,233
46 New Jersey Division of Investment 10,716 15.58 9,482 1,234 68,790
47 Artisan Partners 9,186 59.02 9,186 , 15,563
48 Evergreen Investments/Wachovia Corp. 9,119 4.07 1,742 7,377 224,049
49 New York Life Investment Mgmt 8,816 7.36 489 8,327 119,831
50 SG Asset Mgmt 8,024 8.46 5,500 2,524 94,896
*Owned by Stilwell Financial.
