Favorites for International Manager of the Year

If you think U.S. markets are ugly this year, check out the red ink overseas. London and Tokyo are down about 8% this year and broad foreign-market index MSCI EAFE is down 15%. Needless to say, foreign funds aren't exactly rocking. Nearly all of the ones in the black this year are small- to mid-value managers. I'm sure more will emerge in the coming months, but at this point I could only find three worthy candidates for our international-stock fund manager of the year award. (Last year's winner, Tweedy Browne Global Value (TBGVX), also works the small- to mid-cap space and it has been doing quite well so far in 2001.)

Jean-Marie Eveillard and Charles de Vaulx--First Eagle SoGen Overseas (SGOVX) and First Eagle SoGen Global (SGENX)
Few, if any, foreign managers do as good a job at capital preservation as these two. At Overseas, they earned 6% last year and are up another 6% this year while many of their competitors were going to pieces. Global is doing even better with an 8% return this year. That sounds dull, but it's enough to put both funds' five-year returns in the top 15% of their peer groups even though they took less risk to get there.

The pair employ a deep value strategy focused on finding stocks trading at low prices relative to cash flow or assets. This year Canadian Pacific and Legrand, a French electronic-components maker, have helped the fund run way past the competition. Legrand was bought out this year. If you own a really aggressive foreign growth fund, this one would be a nice complement.

Andrew McDermott, Staley Cates, and Mason Hawkins--Longleaf Partners International (LLINX)
The Longleaf crew is in the running for both foreign- and domestic-stock fund manager of the year thanks to some bold picks. Like Eveillard and de Vaulx, these guys are value managers, but they make much bolder bets. They've got 11% of the fund in De Beers and 9% in Nippon Fire and Marine Insurance. Yikes.

Investors have had some jolts due to those big weightings but the fund has racked up a 16% return this year. Management looks for stocks trading at a 40% discount to their value and only about 20 stocks live up to their rigorous criteria. When they're right, you often see a buyout as happened to De Beers. The fund had a huge year last year too, but we didn't pick them because their record at this fund is short. The fund's third birthday is in October, though, so we'll at least have something closer to long term by the time we make our picks.

David Herro and Michael Welsh--Oakmark International Small Cap (OAKEX) and Oakmark International (OAKIX)
Turns out Oakmark Select (OAKLX) isn't the only Oakmark fund on a roll. International Small Cap is up about 7% this year doing a lot of the same things that the other two candidates have done. Management buys small stocks trading at a steep discount to their value. One difference, though, is that they don't hedge their currency risk they way First Eagle SoGen and Longleaf do. That makes the fund's returns more impressive because they've come in the face of a strong headwind. The dollar has rallied sharply this year. Oakmark International Small Cap is the most volatile of the lot, though. The fund shed 27% of its value in the fourth quarter of 1997.

Poll Results
Last Tuesday, we asked which fund shop Buffett would best fit in. The winner was Tweedy, Browne which received a little over half the vote.