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Noteworthy Players in the Foreign Small/Mid-Cap Blend Group

The new category's roster contains many intriguing options.

Gregg Wolper, 05/22/2012

A recent Fund Spy column introduced two new international-stock categories but lacked the space to discuss any of the new groups' members in detail. Given the widespread interest in international investing and the prominence of some of these funds, it's worth looking more closely at the makeup of the foreign small/mid-blend category in particular.

Following are profiles of three of the group's more-noteworthy offerings, all of which are considered above-average choices by Morningstar's mutual fund analysts. One interesting note: While all three land in the blend portion of the Morningstar Style Box, they get there via three different routes.

The Well-Known
The foreign small/mid-blend category features the biggest fund in any of the foreign small/mid-cap groups, First Eagle Overseas SGOVX. This 18-year-old offering currently has nearly $11 billion in assets. As noted in the previous column, some observers might be surprised to see this fund moved over from its previous home in the foreign small/mid-value category. After all, under former managers Jean-Marie Eveillard (who remains as a senior advisor, though no longer a day-to-day portfolio manager) and Charles de Vaulx (who departed in 2007 and is now with IVA), the fund established a reputation as a stalwart value player.

Under its current managers, it still follows what most would consider a valuation-conscious, careful approach, as it always has. But as Eveillard once said, the fund's style often leans more toward the somewhat flexible Warren Buffett version of value investing rather than the stricter Benjamin Graham version. So, the fact that its portfolios consistently land in the blend box when evaluated by Morningstar's data metrics is not that surprising after all. In fact, over the past 10 years only a handful of the fund's portfolios have moved outside the blend borders into value or growth territory, and each time only by a small amount.

Therefore, from that standpoint placing this long-term winner in the new category was an easy call. The only issue is whether it should be in the foreign large-blend group instead, for its market-capitalization figures put it on the borderline there. Again, that's not a big change from the past; its managers have always had an all-cap approach. If the current crew tilts even more toward large caps over a consistent period in the future, First Eagle Overseas' stay in its new home could be relatively brief.

Under the Radar
With just $60 million in assets, Harding Loevner International Small Company HLMSX is undoubtedly less familiar to readers than the First Eagle offering. But the two have points in common. Like First Eagle, Harding Loevner is a shop that has long specialized in international investing. And like First Eagle Overseas, this fund's portfolio has landed squarely in blend territory for years now. So, it's in the right place.

However, there are some distinctions. Most notably, rather than pushing up against the upper limits of the category, this fund consistently lands in the lowest, small-cap portion of the style box. That makes sense, for in choosing their stocks, Robert Cresci and his comanagers look for companies with market capitalizations between $50 million and $2 billion. Another contrast: While First Eagle arrives in the blend area by having a flexible approach to value, this fund lands where it does by taking a moderate, quality-oriented approach to growth investing.  

This fund's large-cap sibling, Harding Loevner International Equity HLMIX has a solid long-term record. This younger fund's history isn't as long, but it is impressive so far. Its three-year returns top the foreign small/mid-blend category, and its five-year returns land in the top quartile.

Gregg Wolper is an editorial director and senior mutual-fund analyst at Morningstar.

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