The EAFE was off 22 percent last year, but a few international value funds still prospered.
By Kerry Hannon
February 2002
There are good value stocks the world over, but sometimes they’re just a little tough to find.
Last year the top-performing international value fund managers uncovered plenty of winners, even as the Morgan Stanley Capital International Europe, Australasia and Far East index declined 22 percent. According to Morningstar, among the top-performing retail funds, the Oakmark International Small Cap Fund returned 13 percent in 2001 and an annualized 16.55 percent for the past three years, while the Longleaf Partners International Fund returned 10.5 percent last year and an average annual 20 percent for the past three years. (The table below tracks institutional funds.) Overall, 138 international value funds returned an average -14.4 percent last year and an average annual 1.32 percent for the three-year period.
With roughly two thirds of the 35,000 stocks regularly traded around the world scattered throughout Asia, Europe and Latin America, value managers must be adept in separating the wheat from the chaff.
Longleaf portfolio manager Mason Hawkins searches out well-established companies selling for 60 percent or less of their book values. The fund limits its $834 million portfolio to 30 names, which currently include Fiat, Renault and Nippon Fire & Marine Insurance.
For his part, James Doyle, portfolio manager of the $1.4 billion Causeway International Value Fund, looks for companies that have not yet hit their earnings stride. The international value portfolio at Causeway, an international equity start-up launched in June by Sarah Ketterer and Harry Hartford, both of whom are formerly of Merrill Lynch Investment Managers, sports an average price-earnings ratio of 14. Doyle, also formerly of MLIM, seeks dividend yields between 1.5 percent and 3 percent, and he’s not looking for long shots. “We never consider a company that is not showing glimmers of recovery,” he says.
Causeway’s portfolio, which has fewer than 80 names and returned 6.6 percent last year after its October launch, includes Konica Corp. and Repsol, the Spanish energy company with a dominant share in its home market. Doyle thinks both will deliver better-than-expected earnings in the year ahead.
Tweedy, Browne Co., a respected name in value investing, struggled last year with its $46 million Global Value Fund, which returned -4.67 percent. Portfolio managers Christopher Browne and John Spears steer clear of technology and telecommunications stocks and have virtually no exposure to emerging markets. They prefer household names - their holdings include Bayer, Nestlé and Schering-Plough Corp. - that have taken a beating and look to be good buys. After Bayer fell from a 2000 high of $56.25 because of intensifying competition in the pharmaceuticals industry and concerns about the company’s anti-cholesterol drug Baycol, Tweedy Browne picked up the stock at about $30. (It recently traded at $32.50.) With other investors, Tweedy Browne has been pushing the conglomerate to break up.
Also coping with an off year is the $3.6 billion Harbor International Fund, which returned -12.25 percent in 2001. Among its holdings: Canon, Imperial Tobacco Group and BP. The stocks have been battered recently, but Harbor managers think the companies’ fundamentals are strong.
Clearly, value stock picking works in both bull and bear markets. That said, international value fund managers hope they don’t have to place their bets in another sharply declining marketplace.
Institutional funds scoreboard
Morningstar has ranked the following as last year,s top ten international value stock funds.
Fund name
Total return
Assets
calendar year
12/31/01
2001
($ millions)
First Eagle SoGen Overseas Fund
5.53%
$81.20
DFA International Small Cap Value Portfolio
,4.59
486.6
GMO Currency Hedged International Core Fund
,5.27
37.1
GMO International Equity Allocation Fund
,5.73
60.2
Morgan Stanley Inst,l International Small Cap Portfolio
,5.88
373.6
Delaware International Small Cap Value Fund
,5.98
3.6
Templeton Foreign Smaller Companies Fund
,6.59
6.3
GMO International Small Companies Fund
,6.70
221
Standish International Small Cap Fund
,9.68
24.4
Morgan Stanley Inst,l International Equity Portfolio
,9.74
4,502.90
Source: Morningstar.
