Who's on Top of the International-Stock Fund Rankings?

Last week, I examined how the 10 largest taxable-bond shops shake out. This week, it's time for international stock--that last bastion of positive returns and fund investor inflows. At least until this year anyway.

For those tuning in late, I look at how the 10 largest managers of international funds performed, relative to peers, for the three years through February 2008 and through February 2005. Then I weight those performance rankings based on assets at the beginning of the periods. The difference in those asset-weighted rankings says a lot about how well firms handle growth.

To get on the list of biggest international-stock managers, you probably had some great performance at some point to draw those assets. The question is, can you keep your best people, add more staff, and invest the money in an effective way when you have $40 billion to run instead of $40 million?

Top 10 International-Stock Fund Families by Asset-Weighted Three-Year Rank
	3-year Asset-Weighted Rank (Feb. 2005)	3-year Asset-Weighted Rank (Feb. 2008)	Change in Rank
Julius Baer	2	8	-6
Dodge & Cox	9	20	-11
American Funds	28	20	8
Artisan	57	27	30
Vanguard	30	33	-3
Fidelity	27	44	-17
T. Rowe Price	47	53	-6
OppenheimerFunds	34	55	-21
AllianceBernstein	11	65	-54
Franklin Templeton Investments	41	70	-30

1. Julius Baer, on Average, Top 8% of Respective Categories
This is essentially a one-fund story, as  Julius Baer International Equity (BJBIX) has $22 billion in assets while Julius Baer Global Equity  has just $99 million in assets. ( Julius Baer International Equity II (JETIX) has $9 billion, but it doesn't have a three-year record.) As the firm's position at the top of the rankings indicate, International has continued to thrive. Despite the huge growth at this now-closed fund and its sequel, managers Richard Pell and Rudolph-Riad Younes have done a remarkable job maneuvering around wildly different market environments. They have outperformed the foreign large-blend peer group in every single calendar year since they took over in 1995, and they've beaten the MSCI EAFE in all but one year.

2. Dodge & Cox, Top 20%
This is also a one-fund story and a case of tremendous consistency. Unlike Julius Baer,  Dodge & Cox International Stock (DODFX) has more managers and analysts supporting it and sticks strictly to individual stock selection rather than top-down themes. It just shows that there are many paths to success. With low costs, great management, and strong stewardship, this is one of the no-brainers of foreign stock funds.

3. American, Top 20%
We're taking a huge step up in size of operations and money managed by going from Julius Baer and Dodge to American. Consider that Baer's $22 billion behemoth would rank second-smallest against American's five international giants. It's truly impressive that American could deliver such strong performance at that scale. It does it with a strong culture that develops good managers and analysts, low costs that reduce the hurdle rate they need to produce good results, and sound strategies that make all that girth manageable.

Four of American's international funds have produced top-quartile results for the past three years, and there's a good excuse for the one that hasn't.  American Funds New World (NEWFX) has lagged most emerging-markets funds because it takes a more conservative approach to emerging markets. In order to reduce volatility, the fund mixes developed-markets stocks of companies with major operations in emerging markets with bonds and stocks of emerging-market companies. As a result, the fund lags when emerging markets are soaring, as they did between 2003 and 2007, but it loses a lot less in years like 2008 when emerging markets get smacked.

4. Artisan, Top 26%
Now for something completely different, we go to a collection of boutiques with three foreign funds. Lead manager Mark Yockey has rebounded from an off year or two to produce excellent three-year returns at  Artisan International (ARTIX) and  Artisan International Small Cap (ARTJX).  Artisan International Value (ARTKX), which is run by a different San Francisco-based group, brought down the three-year figures a bit due to a brutal 2007, but the fund is already holding up nicely in 2008. Yockey is a growth manager who blends top-down and bottom-up approaches, while Value is run by Oakmark funds alumni David Samra and Dan O'Keefe in a deep-value bottom-up style.

5. Vanguard, Top 33%
Vanguard is the last member of the top 10 to produce strong three-year results. It turns out that the laws of low costs apply outside of U.S. borders. Vanguard's index funds and actively managed funds have fared quite well overseas. Consider that of Vanguard's five foreign funds with top-quartile three-year returns, two are index funds and three are actively managed. I mentioned in my bond-fund article that Vanguard is a happy marriage of lower risk and low costs, and that's true here, too. All of Vanguard's international funds have Morningstar Risk ratings relative to their categories that are at or below average.

6. Fidelity, Top 44%
Overall, Fidelity's returns are pretty widely dispersed. However, most of its large international funds have strong performance. The glaring exception is  Fidelity Advisor Diversified International (FDVAX), where Penelope Dobkin has consistently held a big bet on Japan. That hasn't worked well since the second half of 2005, and it shows in the fund's weak three-year returns. On the plus side,  Fidelity Overseas (FOSFX) and  Fidelity International Discovery (FIGRX) have produced strong performance since their current managers took over. At Fidelity, it's still mostly about the managers. The firm is working hard to lift up the quality of its analyst work across the board so that you can more confidently pick any arrow in its quiver, but it isn't there yet.

7. T. Rowe Price, Top 53%
Although T. Rowe is going gangbusters in the United States, it still has some work to do overseas. When T. Rowe Price split up its joint venture running overseas funds, T. Rowe got to keep the managers but it lost the analyst staff. It has gradually built it up, but Brian Rogers recognized that it needed more work and moved domestic stars Rob Gensler and Bob Smith to international-stock assignments. Gensler took over  T. Rowe Price Global Stock (PRGSX) three years ago, and he's done a bang-up job. Smith only recently took the reins at sleepy flagship  T. Rowe Price International Stock (PRITX), and I'm intrigued to see if he can match Gensler's success.

8. Oppenheimer, Top 55%
Oppenheimer's modest staff and growing assets present a real challenge, but that's probably not why the firm's performance has dipped. Two value funds run by Dominic Freud have sunk to the bottom decile. Freud's aversion to commodity producers has hurt the funds. In addition,  Oppenheimer Global's (OPPAX) performance has been stung by Rhajeev Bhaman's telecom and Internet plays. Global's returns are just a hair below the category average, but that's a big slip from its outstanding returns in the past.

9. AllianceBernstein, Top 65%
AllianceBernstein has suffered a sizable drop in performance. One big culprit is  Bernstein Emerging Markets (SNEMX), which switched from a value approach to a blend of value and growth a couple of years ago. Since then, this fund has gone from a strong performer to a dud. That said, the time frame is rather short to draw conclusions. The story is somewhat similar at  Bernstein Tax-Managed International , where performance has dropped and the fund is split between value and growth teams.

10. Franklin Templeton, Top 70%
This has to sting, as investing overseas is supposed to be a forte at Franklin Templeton. Two of the firm's biggest funds,  Templeton Growth (TEPLX) and  Templeton Developing Markets (TEDMX), have been way out of step with the markets and produced bottom-decile performance. Templeton Growth has owned tech and hard-hit financials such as HSBC--in short they were in the two worst sectors. In the meantime, Developing Markets is working on its fourth straight year of bottom-quartile performance. Big bets on China and Turkey are the most recent culprit. In both funds' history, you can see past bouts of underperformance that they rebounded from, but they've dug themselves a big hole this time.