This year's quintet has distinguished itself in tough conditions.
December has rolled around again, and it's time for us to select the Morningstar Managers of the Year for 2011. We revealed the finalists for Fixed-Income Manager of the Year on Monday, Dec. 12, and we'll announce the nominees for the Domestic-Stock Manager of the Year on Thursday, Dec. 15. Today, we'll name the contenders for International-Stock Manager of the Year.
2011 has been rough on managers who focus on equities abroad, as a rash of macroeconomic problems has left nearly all foreign stock markets well in the red for the year to date through Dec. 8. Foreign large-cap funds and foreign smaller-cap funds have fallen 12% to 15% on average, primarily because of Europe's debt crises and related woes. Diversified and regional emerging-markets funds have lost 18% to 24% on average because of worries that economic weakness in the developed world could undermine their growth. Concerns about inflation in China and India have also weighed heavily on these markets.
As is normally the case in sharp sell-offs, some international-stock managers have managed to limit losses, resulting in exceptional relative returns. However, while these are Manager of the Year awards, we require much more than superior results in the current calendar year. We also demand that the finalists exhibit terrific stock-picking skills, appealing disciplines, and strong long-term records.
With that background, here are the five nominees for the Morningstar International-Stock Manager of the Year 2011.
David Samra, Dan O'Keefe--Artisan International Value
David Samra and Dan O'Keefe have continued to shine since winning the award in 2008 for their prior success at Artisan International Value (which is now closed to new investors). They've guided that foreign large-blend offering to a top-decile result for the year to date through Dec. 8, for example, and they've also led their younger world-stock offering past the vast majority of its rivals thus far in 2011. Both of their funds boast exceptional long-term records as a result. Artisan International Value has posted a 14% annualized return since opening in September 2002, which is the top result in the foreign large-blend category and which would be tied for first in the foreign small/mid group. (This fund moved to the foreign large-blend category from the foreign small-mid value group a few years ago.) And Artisan Global Value has earned a 1% annualized gain and outpaced more than 95% of its rivals since opening in December 2007.
There's a distinctive strategy behind these distinguished results. Samra and O'Keefe favor companies that are selling well below their estimates of intrinsic value, consider companies of all sizes, and let country and sector weightings fall where they may. They typically own just 40 to 50 names. Thus, both funds consistently stand out from their category peers and have what it takes to continue to outperform. And the fact that both managers have more than $1 million invested in each fund is another plus. (Please note that both funds are expected to make small distributions later this year.)
Jim LaTorre, Ted Wendell, Howard Appleby, Jean-Francois Ducrest--Harbor International
Jim LaTorre, Ted Wendell, Howard Appleby, and Jean-Francois Ducrest of Northern Cross, who have been key players on this fund for 10 years or more, are quite selective and patient in their approach. They're set on attractively priced blue chips with catalysts that should lead to significant competitive advantages or pricing power over time. They pay ample attention to emerging-markets names and readily load up on opportunities in individual sectors. And they invest for the long haul: Annual turnover is usually below 20% here.
The merits of this strategy, as well as management's skill, are evident in this fund's year-to-date and long-term records. This fund has lost less than 85% of its foreign large-blend rivals in 2011's tough conditions. More important, it has posted impressive results in all kinds of climates in the past and sports top decile three-, five-, 10-, and 15-year returns. LaTorre, Wendell, Appleby, and Ducrest--who won the award in 2007 along with former lead manager Hakan Castegren and who each have more than $1 million invested in this fund--have made a good case for themselves in 2011. (Please note that this fund is expected to make a small distribution later this year.)
Steve Cao, Jason Holzer, Borge Endresen--Invesco International Small Company
Steve Cao, Jason Holzer, and Borge Endresen may not be very well-known, but they certainly are talented money managers. They've earned better results than all other foreign small/mid growth skippers in this year's sell-off. And first-rate results are anything but an anomaly for them. They've led this fund, which is closed to new investors, to six top-decile finishes and two top-quartile showings in the 2000s, so it boasts some of the best longer-term returns in its category.
Cao, Holzer, and Endresen have used an attractive and prudent growth strategy to deliver these impressive results. They insist that their picks have healthy balance sheets and reasonable valuations as well as strong earnings potential, and they tend to be much more patient than most growth skippers. Annual turnover, in fact, has ranged from 20% to 40% in recent years. Cao, Holzer, and Endresen all serve on the management teams of one or more of the following funds: Invesco Asia Pacific ASIAX, Invesco European Growth
William Browne, John Spears, Tom Shrager, Bob Wyckoff--Tweedy, Browne Global Value
William Browne and John Spears won the award in 2000 along with a former comanager. Tom Shrager and Bob Wyckoff are 20-year veterans of the advisor who were quite involved with this foreign large-value fund long before they became comanagers in 2005. The four managers are more quality-oriented than many bargain hunters. They demand that their picks have healthy balance sheets and strong franchises as well as cheap valuations. While doing so, they always move at a measured pace, normally pay limited attention to emerging-markets issues, and usually have sizable stakes in consumer-related stocks.
Browne, Spears, Shrager, and Wyckoff have used this sensible but distinctive value discipline to lead this fund past 94% of its foreign large-value rivals for the year to date through Dec. 8. More significantly, though they've certainly had some rough spells, the managers have guided this fund to strong results in a variety of markets earlier in the 2000s and in the 1990s, and this fund boasts impressive long-term returns and risk scores. The managers have also earned good year-to-date and long-term risk-adjusted results at Tweedy, Browne Value
David Winters continues to showcase his talents. Despite having less exposure to the U.S. market, which has outperformed most foreign exchanges this year, he has led this world-stock fund to a 0.20% gain, ahead of 93% of its peers, in the terrible conditions that have prevailed thus far in 2011. He delivered the goods during his first five years here, too, so this fund has earned a 6.4% annualized return since opening in October 2005 where the typical world-stock offering has posted a 2.4% annualized return over the period. And he had considerable success as a global manager at Mutual Series before he launched this fund.
There's a strict discipline behind all this success. Winters focuses on 30-40 names that he considers to be compelling bargains, regularly loads up on sectors and countries that are packed with opportunities, and readily considers more-obscure firms. The end result is an exceptionally distinctive portfolio that always gives this fund more than a fighting chance to outperform. And though this fund's high expense ratio is a negative, the fact that Winters has more than $1 million invested alongside his fundholders is a positive.
Morningstar's fund research team will debate and vote on the international-stock, domestic-stock, and fixed-income finalists over the next few weeks. The winners will be announced in early January.