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How Have These Highly Touted Global Funds Fared So Far?

Most of these world-stock funds have gotten off to good starts.

William Samuel Rocco, 08/23/2010

Mutual fund investors have considerably more global-equity options than they did five years ago. Since the end of 2005, the world-stock category has grown to 241 from 131 offerings.

Unfortunately, many of the new funds started with undistinguished managers, unexceptional strategies, or other limitations, so there was little reason to expect a lot from them. And of the more promising ones, several just opened in the past year or two, and therefore their performance records are not lengthy enough to evaluate yet.

However, a handful of the newer world-stock funds started with seasoned and skilled skippers, distinctive disciplines, and other strengths and do have long-enough records to evaluate. Among the class of 2006 or 2007 were Artisan Global Value ARTGX, Harbor Global Value HIGVX, Marsico Global MGLBX, Oakmark Global Select OAKWX, and Thornburg Global Opportunities THOAX.

There were ample grounds to be enthusiastic about these five funds early on, and now that they have a few years of performance to assess, it makes sense to see if they're living up to their early billings.

Artisan Global Value ARTGX
It's not difficult to figure out why this fund opened with a lot of fanfare in late 2007. Artisan is a fundholder-friendly shop that has delivered the goods with a variety of equity offerings. This fund's managers, David Samra and Dan O'Keefe, already had a record of success running Artisan International Value ARTKX. And they were applying the same strict all-cap value strategy on this fund as they used at that foreign small/mid-value offering.

Samra and O'Keefe have executed that strategy well thus far. This fund posted relatively modest losses in the terrible climate that prevailed in its first 15 months, as their high standards and emphasis on solid businesses with no more than moderate debt levels kept them away from the hardest-hit areas. And it has earned superior returns in the generally favorable conditions that have occurred since the global meltdown ended in March 2009, thanks to the overall quality of their stock selection. This fund always has a concentrated portfolio and often sports atypical country and sectors, which come with real risks, but it has certainly bolstered its case in the early going.

Harbor Global Value HIGVX
This fund was launched with good calling cards in mid-2006. Harbor is a fine firm that has done a fine job of choosing subadvisors for its funds. (Five of its subadvised offerings are Fund Analyst Picks.) The subadvisor it selected for this fund, a team from Pzena Investment Management, had earned strong long-term returns at John Hancock Classic Value PZFVX. The team installed the same focused deep-value strategy here as it used there, so there was plenty of reason to be optimistic about the long run here.

Nonetheless, the team has missed the mark more often than not thus far. This fund posted sluggish gains as stocks rallied during its first year and suffered huge losses in the late 2007 to early 2009 equity meltdown, largely because the team made several poor picks in the financials sector. It has earned superior gains during the 17 months since the equity meltdown ended, thanks in part to the team's ongoing commitment to financials stocks. But it has posted a 9% annualized loss since it opened, while its typical peer has incurred a 1% annualized decline. It's too soon to give up on this fund--and the team made some sensible adjustments to the strategy recently--but to date its risks have outweighed its rewards.PAGEBREAK

Marsico Global MGLBX
This offering opened just a few months before the world's equity markets began their sharp and sustained sell-off in the fourth quarter of 2007. It didn't lose too much more than the group norm in that awful downturn, though it follows a pretty bold growth approach. And it has posted strong returns over the past 17 months while stock exchanges across the globe have gyrated up, as many of the team's emerging-markets and other holdings have thrived. As a result, it has outpaced roughly 95% of its peers during its 37-month history.

This fund's strong start comes as no surprise. Marsico is a topnotch growth shop. Lead manager Cory Gilchrist has produced superior long-term returns at Marsico 21st Century MXXIX, while comanagers Tom Marsico and James Gendleman have earned good long-term gains at the family's large-growth and foreign large-growth offerings that they run on their own. And all of the Marsico offerings rely on the same growth strategy, which combines top-down analysis with bottom-up stock-picking. All this bodes well for this fund's future, but its taste for emerging-markets stocks and other intrepid traits means that it is likely to encounter some rough spells.

Oakmark Global Select OAKWX
It's pretty clear why we and others were optimistic about this fund early on. It was in the hands of two former Morningstar Managers of the Year: Bill Nygren (who received the domestic-stock award in 2001) and David Herro (who won the international-stock award in 2006). Nygren and Herro had installed the same strict value strategy that they and other Oakmark managers had used to earn good long-term returns at other family offerings. And they were focusing on 20 names here, which would allow them to showcase their stock-picking acumen.

A concentrated portfolio of 20 names comes with considerable company-specific risk, of course, and a handful of poor-performing firms in the financials and other sectors caused this fund to post subpar gains during its first 12 months. But the benefits of Nygren's and Herro's security-selection skill were apparent in the equity sell-off that lasted from late 2007 to early 2009 and especially the stock resurgence that followed. As a result, this fund has posted a 1.4% annualized gain since opening in late 2006, whereas the average world-stock offering has suffered a 2.0% annualized loss during the period. It has real potential for focused-funds fans who have long time horizons and can handle the volatility that comes with its concentration.

Thornburg Global Opportunities THOAX
When this fund was launched in mid-2006, Thornburg already had a history of success with domestic-stock, international-stock, and world-allocation offerings. This fund was in the more- than-able hands of Brian McMahon (the firm's CIO as well as a comanager of its world-allocation) and Vinson Walden (who has both domestic- and foreign-equity experience). McMahon and Walden were following a bold but sound go-anywhere approach that shared several traits with its successful siblings' strategies and that would provide ample opportunity to outperform. Thus, it makes sense that there was a lot of enthusiasm about this fund from the outset.

The more aggressive aspects of the approach did backfire in the late 2007 to early 2009 equity meltdown. However, McMahon and Walden executed their strategy exceptionally well in the up markets that preceded and followed that tough period, and this fund has outgained roughly 95% of its rivals over its roughly four-year history. The managers' practice of focusing on 30 to 40 names, penchant for loading on countries or sectors with lots of compelling names, and taste for smaller caps make this fund too risky for more-conservative investors. But this fund is making a strong case for itself as an option for more-intrepid investors. 

William Samuel Rocco is a senior fund analyst at Morningstar.

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