Alternatives to Two Great Closed Foreign Funds

In the past couple of weeks, two outstanding international value funds closed to new investors:  Longleaf Partners International (LLINX) and  First Eagle Overseas (SGOVX). Investors who were contemplating buying them must now decide how to react.

Typically, in such cases, we like to suggest alternatives. But that's not easy when the funds in question are as unusual as these two. In a sense, given their unique investment styles, it would be wrong to suggest that any funds from other advisors provide exact or even close replicas of them.

But leaving it at that doesn't help you. So we have come up with two different ways to respond.

Stroll on Over to Third Avenue
Although the closed funds are unique, a reasonable alternative happens to exist.  Third Avenue International Value  only recently celebrated its second birthday, but its heritage makes it more than an untested newcomer. Manager Amit Wadhwaney uses the far-from-the-herd, deep-value method of evaluating companies that Marty Whitman and his team have successfully implemented at highly esteemed  Third Avenue Value (TAVFX) for more than a decade. What's more, Whitman has frequently invested overseas with that fund, so the foreign angle isn't new for the family by any means.

Thus, Third Avenue International Value's approach is similar (though not identical) to those of the two closed funds. Most importantly, like the two closed funds, Third Avenue International Value pays no attention at all to index weightings or how the typical international fund invests. For example, both this fund and the Longleaf offering have near-20% stakes in Canada, which doesn't even appear in the popular MSCI EAFE Index. (Wadhwaney also has double-digit stakes in two even less common destinations: Norway and New Zealand.) Another hint that the three funds share a similar vision: All recently held hefty cash stakes of between 15% and 25% of assets, because, after a huge runup in the markets, they're not finding enough stocks that meet their stringent value criteria.

To be sure, Third Avenue International Value is no replica of either of the closed funds, and it won't perform exactly as they do. For example, it differs from First Eagle (but not Longleaf) in having a concentrated portfolio, with less than 40 holdings in total and hefty allotments to its top picks. Conversely, it differs from Longleaf (but not First Eagle) in having a small average market cap, going very light on big companies.

So far, Third Avenue International Value's approach has yielded impressive results. It lost just 2.9% in 2002's down market, beating the EAFE by double digits, and then soared in 2003's rally, gaining 54.7%, again trouncing the EAFE by double digits. That's still a brief history, and it would be wrong to assume this fund will top the others or is guaranteed to become as renowned as its older sibling. But it's a sound option. What's more, it remains nimble: It has just $112 million in assets.

Keeping It in the Family
That's not the only choice for investors disappointed because they didn't get into Longleaf Partners International or First Eagle Overseas. They may also consider a less conventional approach, and dispense with the idea that the alternative must be another all-foreign fund. Given that one of the main attractions of each closed fund is management's skill in implementing an unusual style of investing, why not invest with those same managers in their other funds--even though those alternatives do not restrict themselves to foreign fare?

 Longleaf Partners Fund (LLPFX) uses the same technique that gave Longleaf Partners International its great record, has two of the same managers, and has been doing it much longer. And it has a foreign component--as with Third Avenue, it would be wrong to think this "domestic" fund has been purely domestic. Far from it: A meaningful foreign stake isn't uncommon.

Similarly,  First Eagle Global (SGENX) has existed much longer than its all-foreign sibling, and in this case, has the same managers using the same strategy. And at roughly 40%, its current foreign component (which looks quite similar to the portfolio of First Eagle Overseas) is even higher than that of Longleaf Partners Fund. In fact, First Eagle Global has always been positioned as a global or world fund rather than one that focuses primarily on the United States. Sure, you're getting more U.S. exposure than you would if you owned First Eagle Overseas. But given its unusual makeup, First Eagle Global's domestic portion is unlikely to overlap with your existing U.S. holdings.

Don't invest in these older siblings if, for allocation purposes, you truly wanted an all-foreign offering. But if you do choose to follow this second route, don't wait too long. The advisors of both Longleaf Partners and First Eagle Global have indicated they may close those offerings, too, for the same reasons that they shut the doors of their all-foreign offerings.