But these funds still have what it takes.
It was anything but easy sailing for foreign-equity managers in 2010, even though most overseas stock markets ended the year with high-single-digit or low-double-digit gains in dollar terms. Nearly all of the world's equity exchanges experienced a lot of volatility during the year. There also was quite a bit of variation in performance across the geographic, style, sector, and market-cap spectrums in 2010. Indeed, emerging markets handily outgained developed exchanges; growth stocks comfortably outpaced value issues; the industrial and materials sectors returned far more than the health-care and utilities sectors; and small-cap names gained much more than large-cap stocks.
Many talented foreign-equity managers navigated these challenging seas very well. For example, Brent Lynn of Janus Overseas
However, several skilled international-stock skippers struggled in 2010's demanding conditions. Three who posted especially poor results run very prominent funds. Thus, we decided to take a close look at what caused their funds to languish last year and whether there are any causes for long-term concern.
The Team at American Funds Capital World Growth & Income
There's no denying the fact that the team failed to deliver the goods at this front-load world-stock offering last year. The team's taste for giant caps and emphasis on undervalued dividend payers slowed returns. Its decisions to stick with its relatively hefty stakes in telecom names and European stocks were burdensome as well, as such issues generally posted subpar returns. Consequently, this fund gained 6 percentage points less than the world-stock norm of 14% in 2010, finishing behind nearly 90% of its peers.
That's disappointing, of course, but the factors that held this fund back are central to the strategy that the team has employed here since the early 1990s. That strategy--which consists of buying attractively priced blue chips with healthy yields, letting country and sector weights fall where they may, and being patient--is inherently sound. The team used it to earn good results in all kinds of climates prior to 2010, in fact, so this fund boasts top-decile 10-year and 15-year returns. And that long-term record of success, plus the good results that the members of the team have earned elsewhere and the ongoing advantage of a low expense ratio, means that this fund has bright prospects.
Mark Yockey of Artisan International
Mark Yockey had a tough go of it at both of his funds in 2010. Artisan International finished in the foreign large-blend category's basement with a return that lagged the group average by 4 percentage points, hurt by Yockey's decision to load up on European banks (most of which languished last year) as well as some of his picks in other areas, such as the German chemical and health-care conglomerate Bayer
These results, disheartening at they may be, should be kept in perspective. Though Yockey is a price-conscious growth investor, he searches far and wide for opportunities and has the courage of his convictions. Thus, his funds often sport sizable geographic and sector overweightings, and they usually stand out from their category peers. These distinctions can backfire, and both funds had rough spells prior to 2010. But Yockey's decision-making has been on the mark more often than not--and has sometime led to great results. Both funds have produced good returns over the long run. Those records, plus the inherent strengths of Yockey's flexible but disciplined approach, provide ample grounds to be optimistic about both funds in the future.
Kirk Henry of Dreyfus Emerging Markets
Several of Kirk Henry's calls failed to pay off for this front-load diversified emerging-markets offering in 2010. Henry kept this fund's exposure to consumer-related stocks fairly modest for valuation reasons, and many such issues posted especially strong gains last year. He invested more in the relatively sluggish utilities sector than most of his peers did. And he added to a number of names on weakness that ended up posting significant losses, including top-25 holdings Petrobras