Offerings from Oberweis, Rainier, and Seafarer are proving even small funds can be competitive when it comes to picking stocks across the globe.
Andrew Foster is used to spending hours on a plane as he searches the globe for stocks he believes are undervalued. A recent 10-day trip spanned more than 15,000 miles as he visited with more than a dozen management teams in Mumbai and Hong Kong. Only a typhoon kept him from traveling to mainland China. Such due-diligence trips are routine for Foster, who launched emergingmarkets fund Seafarer Overseas Growth & Income
“You want to make sure reality matches your analysis,” Foster says. “It’s worth the trip if you come back with one good idea.”
Foster and peers such as Ralf Scherschmidt of Oberweis International Opportunities
These managers, though, have their work cut out for them. The old adage is that investors should pay up for international managers because they can exploit local market inefficiencies. A good manager with analysts on the ground can find attractive stocks long before others do. To that end, J.P. Morgan has an annual research budget that surpasses $100 million. T. Rowe Price has 12 experienced analysts that just focus on the Middle East and Africa. By comparison, Scherschmidt has four analysts—for the entire globe.
Another obstacle to contend with is a series of index mutual funds and exchange-traded funds that allow advisors to get more focused coverage to a certain region or country and different-sized companies within those areas. For example, Vanguard FTSE Emerging Markets
“There is a value-add for sure for [an active manager], especially in a market that is hard to focus in on,” says Dave Stock, chief investment officer of Rainsberger Wealth Advisors in Colorado Springs, Colo. Stock uses a mix of active funds, index funds and ETFs in his practice. “At some point we are vehicle-agnostic,” he says. “But it’s a good overlay to have some active management.”
Foster, Scherschmidt, and Strabo must also navigate a shifting international investing landscape. Emerging markets were key performance drivers the past decade as demand for commodities and infrastructure projects led to robust economic growth.
Now, though, bellwethers such as China and Brazil are expected to grow 7.7% and 2.4%, respectively in 2013, below the levels that made them darlings in the 2000s. Concerns about the Federal Reserve ending its tapering policy have also weighed on these markets. The average diversified emergingmarkets fund is flat this year, and India equity funds are down a staggering 12.8%. Meanwhile, Japan has jumped as economic reforms have taken hold. The average Japan stock fund is up 25.1% for the year through Oct. 31.