Early Report Cards on Three International-Stock Managers

It's challenging to predict ahead of time whether a fund will be able to deliver the goods after it changes managers. In certain situations, there are ample grounds for optimism. For example, high-quality funds taken over by a seasoned and skilled colleague of the departing manager generally fare pretty well, particularly when the new skipper sticks with the existing strategy. By contrast, it would be hard to have a positive outlook for another manager change at a mediocre fund with a history of manager and strategy turnover, especially if the new skipper has an uninspiring resume.

But the scenarios for most manager changes fall between these two extremes. What's more, sometimes reality confounds expectations. Even the most promising manager changes can fail to pan out, such as when a new skipper gets off to a very slow start or when a previously successful manager loses his or her touch. And on occasion suspect manager changes turn out much better than anticipated.

Thus, it makes sense to keep an especially close eye on all funds that have changed managers. With that in mind, we're going to scrutinize three notable international-stock funds that have changed managers in recent years--namely, BlackRock Global Growth MDGGX, Nuveen Tradewinds International Value NAIGX, and T. Rowe Price International Stock PRITX

BlackRock Global Growth MDGGX
The front-load world-stock fund's late-2008 manager change came with ample promise. While the outgoing team was not without merit, the incoming team, which is led by Thomas Callan and Michael Carey, is an excellent squad that had produced superior long-term results at BlackRock International Opportunities BREAX and BlackRock US Opportunities BMEAX, so this fund got a substantial management upgrade. And Callan, Carey, and their teammates are employing the same strategy here as they do at their other offerings. They use a combination of top-down industry and bottom-up security analysis to build a diversified but distinctive portfolio, so this fund's strategy is sound as well as proven.

Nonetheless, Callan, Carey, and their teammates have posted uneven returns so far. They delivered superior gains in 2009, as an array of their industry calls and individual picks paid off. But their decision-making has been somewhat off the mark since. This fund has posted a 22% annualized return on their watch, while the typical world-stock offering has posted a 24% annualized gain. This is not a cause for alarm. (The team's older charges have had similar rough spells in the past and more then compensated for them over time.) But it is a reminder that even good managers can get off to uninspiring starts.

Nuveen Tradewinds International Value NAIGX
The outlook was mixed for this front-load foreign large-value fund when it changed managers in June 2009. Outgoing manager Paul Hechmer is a seasoned and skilled money manager who delivered excellent results over his nearly seven-year tenure here using a distinctive value discipline. His departure, therefore, was a significant loss.

The incoming managers, Alberto Jimenez Crespo and Peter Boardman, had fairly limited portfolio-management experience at that time. But they had solid resumes overall. Jimenez had nine years of investment experience, which included 15 months as a comanager on a global resources offering, while Boardman had 22 years of investment experience, which included a stint running the Japan portion of a foreign fund. They inherited Hechmer's support team, including David Iben, the chief investment officer of Tradewinds and the successful skipper of two global offerings. And Jimenez and Boardman continued to pursue a select set of cheap stocks with strong fundamentals and to build big country and sector overweightings just as Hechmer did and Iben always has. Thus, there were grounds for cautious optimism.

This atypical approach has led to choppy results so far under Jimenez and Boardman. This fund posted top-decile gains in 2010, fueled by its hefty stake in the hot materials sector. But many of its materials holdings have struggled in 2011, and it has posted bottom-decile results for the year to date. It has returned significantly less than the typical world-stock offering since Hechmer left. However, Iben's funds have performed similarly the last couple of years, and their long-term records remain good. There's still reason to be hopeful about this fund's prospects.

T. Rowe Price International Stock PRITX
This foreign large-growth fund's late-2007 manager change is the kind that inspires confidence. For starters, it was an especially smooth one. T. Rowe Price announced the details well ahead of time. Incoming manager Bob Smith, who joined the firm in the early 1990s, got involved with this fund before he took over. And the outgoing lead manager and a couple of his comanagers stayed on board for a while after Smith took the helm in October 2007 in order to facilitate the transition. What's more, while this fund posted lackluster results under the outgoing managers, Smith earned superior returns with relatively moderate volatility during his 10-year tenure at T. Rowe Price Growth Stock PRGFX. He regularly invested 10% to 15% of that large-growth fund's assets in international stocks. And he spent the months leading up to his takeover of this fund enhancing his knowledge of overseas markets and foreign equities.

Smith made some adjustments to this fund's strategy when he took over, such as paying more attention to emerging-markets opportunities, while maintaining the emphasis on stocks with superior long-term growth prospects and reasonable valuations. He has executed this modified approach fairly well overall in the volatile conditions that have prevailed during his tenure. (He took the helm just before the global meltdown began.) In fact, while the average foreign large-growth offering has suffered a 3.4% annualized loss since Oct. 1, 2007, this fund has posted a 1.8% annualized decline, thanks in large part to the big gain Smith delivered in the 2009 rebound.