Three former winners vie to add to their trophy case.
In last Thursday's Fund Spy, we unveiled the nominees for Morningstar's Domestic-Stock Fund Manager of the Year. Here are the nominees for International-Stock Fund Manager of the Year. Columns discussing the nominees for other asset classes will follow this week and next, and the winners will be announced on Jan. 25.
These nominations reflect more than the managers' performance and portfolio decisions in 2016 alone; we're not trying to promote one-year wonders. Rather, we recognize managers who not only had strong results in 2016, but whose impressive one-year showing underscores the merits of their approach and their ability to deliver sound long-term performance. To be nominated, therefore, managers must have demonstrated success over time as well as in 2016 and must run a fund with a Morningstar Analyst Rating of Gold, Silver, or Bronze.
The 2016 investment environment once again was a challenging one for international-stock managers. Although most European economies eked out modest rates of growth, political developments--including Britain's vote to leave the European Union and the U.S. presidential election--as well as continuing problems with some of that region's banks raised all kinds of uncertainty along with tangible effects. In the case of the euro and, more drastically, the British pound, one effect was a decline in currency values. That said, stocks in the United Kingdom rebounded after a sharp fall immediately after that country's referendum (the pound did not recover), and many emerging-markets stocks and currencies that had sputtered in 2015, notably those in Brazil and Russia, posted strong gains on both fronts.
Overall, the foreign-stock categories posted weaker gains than their counterparts that target the United States, owing partly to currency effects. Some managers, though, stood out. Below are the three nominees for the 2016 Morningstar International-Stock Fund Manager of the Year award, listed with their most prominent fund.
David Samra and Daniel O'Keefe
Artisan International Value ARTKX
2016 Return: 5.5%
Morningstar Category Rank (Percentile): 8
10-Year Return (through Dec. 31, 2016, annualized): 5.4%; MSCI ACWI ex USA Index: 1.0%
David Samra and Daniel O'Keefe run a compact portfolio (closed to new investors) of 40-50 stocks, using a value-leaning strategy that relies on more of an all-cap approach than their typical peer. The duo has won the award for Morningstar International-Stock Fund Manager of the Year twice, in 2008 and 2013. While two manager-of-the-year awards would be notable under any circumstances, it's exceptional that these managers racked up their awards in two very different climates. In 2008--as many readers no doubt remember, despite efforts to repress the memory--global markets were in free-fall in response to an alarming financial crisis. The managers held this fund's losses far below those of competitors and benchmarks. Five years later, in 2013, they were able to outperform markedly in an exuberant rally, proving that they weren't just defense mavens.
It's perhaps fitting, therefore, that Samra and O'Keefe have earned another nomination in a year that falls between those two extremes. In 2016, most foreign stock markets posted gains, but the foreign large-blend Morningstar Category--where Artisan International Value and the main funds run by the other nominees are classified--rose only 0.8%. This fund succeeded partly because of purchases made in previous years. For example, they bought Telefonica Brasil in July 2015 when Brazil was in the midst of political and economic turmoil and the stock price had fallen sharply. The managers bought more of it when most investors continued to flee in late 2015 and early 2016 and reaped the benefit when the stock then soared.
The managers' long-term returns are exceptional as well; this fund's annualized 10-year return of 5.4% through year-end 2016 crushed the MSCI ACWI ex USA Index's figure of 1.0%.
Dodge & Cox International Investment Policy Committee
Dodge & Cox International Stock DODFX
2016 Return: 8.3%
Morningstar Category Rank (Percentile): 2
10-Year Return (annualized): 2.1%; MSCI ACWI ex USA Index: 1.0%
Like Samra and O'Keefe, this manager team has twice been named as International-Stock Fund Manager of the Year. In this case, the awards came in 2004 and 2014. While the composition of the group has changed somewhat since the fund's 2001 inception, nearly all of the eight current members (plus another one who retired in mid-2016) have been on the team either as managers or analysts since inception. And the fund's patient, long-term, value-leaning strategy has remained in place throughout.