Selecting finalists for this hard-hit group made us feel like a pig-kisser at a county fair.
This year's nominees for Morningstar's International-Stock Manager of the Year have all performed abysmally of late. They have losses with a capital L. The best of the bunch has dropped nearly 30% so far in 2008 and more than half are down more than 40%. Sure, they've all held up much better than the benchmark MSCI EAFE Index and the vast majority of international funds, but that isn't saying much and will be cold comfort to shareholders curled up in the fetal position watching a big chunk of their nest egg vaporize.
To their credit, none of our nominees is even remotely happy with their near-term performance. No one is ordering "We lost less than EAFE in 2008" T-shirts. They all know you can't eat relative returns and that losing less than your rivals is a Pyrrhic victory: Another year like this and these funds would practically be goners.
Fortunately, we don't expect that. The nominee's funds have been caught in a vicious global downturn that has hit all markets. No one has been safe as liquidity has evaporated, and forced selling by hedge funds and other levered vehicles has exacerbated the plunge in share prices. Loads of cheap stocks have gotten even cheaper. They may fall further yet.
But things always look darkest before the dawn. All our nominees have stellar long-term records, and, most importantly, the processes and teams that built these enviable results remain largely intact. They've seen plenty of downturns over the years and lived to tell about it. And remember, the next couple of years will likely look much different than the past two. Veterans like our nominees know that sticking with a proven process matters most when things are bleakest. It lays the groundwork for future gains. As John Templeton noted, you make most of your money in bear markets, you just don't know it at the time.
The managers below continue to do what has brought them success over the long haul, and we are highly confident in them. Markets will rebound. Maybe not tomorrow, next month, or even next year. But they'll come back. They always have. When things are once again looking up, we expect our nominees' funds to remain among the cream of the crop. The difference is that we plan to be lauding them for making more than their peers, rather than losing less. We can't wait.
Christopher Browne, William Browne, John Spears, Tom Shrager, and Bob Wyckoff
Tweedy Browne Global Value
It's a bit of redemption for this fund. Despite posting strong absolute returns from 2003 to 2007, this prudent fund badly lagged more-aggressive peers. Some questioned whether its cautious style was obsolete. But, more than a year into a global downturn, the fund's measured tack has been validated--again. It has lost a ton so far in 2008 but is holding up better than most. And the implosion of a bunch of highfliers has raised the fund's three- and five-year rankings toward the top of its category. This fund has 10% of its assets in U.S. stocks, which has given it a small leg up on most of the other nominees this year.
Jeffrey Coons, Michael Magiera, Marc Tommasi, Christian Andreach, Jeffrey Donlon, Brian Gambill, and Jeffrey Herrmann
Manning & Napier World Opportunities
Manning & Napier is not the most widely known shop. But it's a winner. All its funds use an all-cap, analyst-driven approach that incorporates growth, value, and cyclical plays. The shop is risk-averse, and its funds have done comparatively well in down markets. This one lost much less than the benchmark and its typical rival in the last bear market from 2000 through 2002. Although it's down more than 40% so far in 2008, it's besting its bogy and nearly all of its category peers. This fund's long-term record remains stellar, and we think highly of Manning & Napier's commitment to shareholders.
Hassan Elmasry, Paras Dodhia, Jayson Vowles, and Michael Alison
Van Kampen Global Franchise
This world-stock fund keeps about 80% of its assets in consumer-related stocks, which has given it an edge this year. Morningstar's consumer-services and consumer-goods sectors have held up much better than most in 2008. In a market crisis investors have flocked to the stable, dominant consumer plays that this fund holds, such as Procter & Gamble
Jean-Marie Eveillard, Abhay Deshpande, and Matthew McLennan
First Eagle Overseas
Investing legend Jean-Marie Eveillard is back after a brief retirement, this fund has lost less than any of the nominees so far in 2008, and its 10-year return is the best among our nominees--by far. So why haven't we already etched Eveillard's name on another award--he won in 2001--and moved on? Mainly, we have some concerns about the revolving door on the manager's office here the past year or so. Eveillard retired a few years back, turning the reins over to his protege, but came back after he bolted. Matthew McLennan was just named to the team alongside longtime analyst Abhay Deshpande. And Eveillard is retiring--again--in March 2009. The constant has been the rigorous application of Eveillard's Ben Graham-inspired strategy. Eveillard has trained his teams well, and the fund remains a winner.
William Fries, Wendy Trevisani, and Lei Wang
Thornburg International Value
This pure stock-picker's vehicle is a proven entity. Veteran Bill Fries and his team have used a go-anywhere approach to generate one of the best long-term risk/reward profiles in the foreign large-blend category. Fries ignores the benchmark and simply buys where he finds the best bargains. He's been right much more often than not over time. The fund has taken some hits in a brutal market and is deep in the red so far in 2008. Still, that loss is less than nearly all its rivals' and the MSCI EAFE's Index. All the right pieces remain in place here.
Oppenheimer International Growth
George Evans is a bit of an anomaly among our nominees. He's a growth investor favoring a thematic approach, while most of the other nominees are value-leaning investors who use pure bottom-up approaches. Both strategies can work. This fund has been hit a bit harder than many nominees so far in 2008, but it's still beating the benchmark and most international funds. Its long-term record remains strong as well.
Anne Gudefin, Mandana Hormozi, and Charles Lahr
This fine fund would seem to be a shoo-in for this year's award. It has lost less than the other nominees in 2008 and has a great long-term record. But manager Anne Gudefin has been here for about three and a half years and the rest of her team joined her in early 2007. So, the fund's topnotch long-term results aren't fully attributable to them. And this is a world-stock fund that keeps about half its assets in the United States. Foreign markets have fallen even further than domestic stocks this year, giving this fund an edge over the other nominees. Still, Gudefin has made hay while in charge. The fund's three-year return is near the very top of its category, and Mutual's process and support structure are great.
James Moffett and Gary Anderson
UMB Scout International
This fine fund is down but far from out. Like all international funds, this one has been hit hard by the global downturn that has crushed stocks in all markets. It's been hit hard in 2008 but looks strong compared with its typical rival. Long-term holders are still in great shape here, and new prospects will be well positioned if they buy in. Moffett has long had success using a combination of macroeconomic forecasting and pure bottom-up stock-picking. He looks for countries and sectors with the strongest economic trends and then buys financially sound firms with stable businesses within those areas. He has executed this process with aplomb over time, and we expect the same going forward.
David Samra and Daniel O'Keefe
Artisan International Value
One of the younger nominees, this fund has been a winner since its 2002 inception. David Samra and Daniel O'Keefe had past stints working on Oakmark's international offerings with David Herro, our 2006 International-Fund Manager of the Year. They've learned their lessons well. Like Herro, Samra and O'Keefe are contrarians who buy firms trading at big discounts to their estimates of intrinsic value. They willingly pile into battered and emerging markets and pay no heed to the benchmark's weightings. So far, they haven't missed a step. The fund is down less than nearly all other nominees in 2008, but it lacks the truly long-term record that some of the others have.
Third Avenue International Value
As we've noted before, this fund gets so far off the beaten path that it doesn't even know there is a beaten path. Amit Wadhwaney takes Third Avenue's safe-and-cheap approach on the road with this fund. Unlike many managers who've recently found balance-sheet religion in a global downturn, Wadhwaney has always focused on assets and liabilities--or the lack thereof. He has a talent for unraveling complex entities to find hidden and undervalued assets. No market or firm is too obscure, and the fund often owns names that few others in Morningstar's database hold. The fund is deep in the red so far in 2008 but has lost much less than the benchmark and nearly all of its peers. Its record since inception is stellar.
The 2008 Fund Manager of the Year winners will be announced on Morningstar and CNBC on Tuesday morning, Jan. 6, 2009.
Michael Breen is a senior analyst with Morningstar.
Get mutual fund and stock information from our analyst team delivered to your e-mail inbox every Tuesday. Sign up for our free Investment Insights e-newsletter.