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By Katie Rushkewicz Reichart, CFA | 06-15-2010 11:49 AM

A Fallen Angel Pick in Global Small Caps

Wasatch Global Opportunities manager Robert Gardiner on the challenges of micro-cap investing overseas and two picks in semiconductors and transaction processing.

Katie Rushkewicz: I am Katie Rushkewicz with Morningstar. I am here with Robert Gardiner of Wasatch Global Opportunities, a world stock fund that launched in November 2008. Thanks for being here Robert.

Robert T. Gardiner: Thank you, Katie.

Rushkewicz: You've had a long career at Wasatch and previously managed the micro-cap fund. Micro-caps play a pretty big role in this portfolio, too. Are there significant challenges to investing in micro-caps overseas versus domestically?

Gardiner: Just the challenges that you'd see are just the ones you'd expect. You've got a different language, you've got a different culture, you've got different accounting, you've got probably more currency issues, and in the emerging markets, you might have some corporate governance issues. And actually, probably the hardest thing of all is the travel schedule that you've got to follow to go see these companies. It's a little harder to get to Australia. I was in Australia a month ago, and it's a long flight, and so that takes its toll. So those would be the challenges.

Katie Rushkewicz: You've been in micro-cap investing for nearly 30 years. How has that changed during your career?

Robert Gardiner: We're doing – I am doing almost exactly the same thing I was doing 30 years ago, only, hopefully, I am better at it, but pretty much, we're following kind of the same process we always have. And the only change I might say is, domestically, in the U.S., Sarbanes Oxley has maybe hurt the micro-cap space because of the all the regulations, there haven't been as many IPOs coming. Now, the positive on the international side is the IPO markets have never been better kind of over the last decade.

And so, we still invest domestically and are still excited about the micro-cap space, but with fewer IPOs, because of the cost for micro-cap companies, they've deferred becoming public or chosen not to come public or waiting until they are bigger, that has maybe dampened the micro-cap space domestically, and that's probably the most profound change. It's kind of an interesting time, though, there might be some pent-up demand; we are seeing a little healthier IPO environment now.

We are not big IPO players. We typically buy six to nine months later, kind of after Wall Street's moved on to the next hot IPO. So that's a pretty big change in the last decade, that it's been a little tougher domestically, but the exciting part about this global product is, I can kind of go where I need to, and the IPO area internationally has been very exciting with a lot of companies coming public, so that just gives me a big universe to choose from.

Rushkewicz: Your strategy centers a lot around high-quality growth companies, but I understand you also invest in what you call fallen angels or companies with temporary setbacks. Can you give me an example?

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