Noteworthy Players in the Foreign Small/Mid-Cap Blend Group

A recent Fund Spy column introduced two new international-stock categories but lacked the space to discuss any of the new groups' members in detail. Given the widespread interest in international investing and the prominence of some of these funds, it's worth looking more closely at the makeup of the foreign small/mid-blend category in particular.

Following are profiles of three of the group's more-noteworthy offerings, all of which are considered above-average choices by Morningstar's mutual fund analysts. One interesting note: While all three land in the blend portion of the Morningstar Style Box, they get there via three different routes.

The Well-Known
The foreign small/mid-blend category features the biggest fund in any of the foreign small/mid-cap groups,  First Eagle Overseas (SGOVX). This 18-year-old offering currently has nearly $11 billion in assets. As noted in the previous column, some observers might be surprised to see this fund moved over from its previous home in the foreign small/mid-value category. After all, under former managers Jean-Marie Eveillard (who remains as a senior advisor, though no longer a day-to-day portfolio manager) and Charles de Vaulx (who departed in 2007 and is now with IVA), the fund established a reputation as a stalwart value player.

Under its current managers, it still follows what most would consider a valuation-conscious, careful approach, as it always has. But as Eveillard once said, the fund's style often leans more toward the somewhat flexible Warren Buffett version of value investing rather than the stricter Benjamin Graham version. So, the fact that its portfolios consistently land in the blend box when evaluated by Morningstar's data metrics is not that surprising after all. In fact, over the past 10 years only a handful of the fund's portfolios have moved outside the blend borders into value or growth territory, and each time only by a small amount.

Therefore, from that standpoint placing this long-term winner in the new category was an easy call. The only issue is whether it should be in the foreign large-blend group instead, for its market-capitalization figures put it on the borderline there. Again, that's not a big change from the past; its managers have always had an all-cap approach. If the current crew tilts even more toward large caps over a consistent period in the future, First Eagle Overseas' stay in its new home could be relatively brief.

Under the Radar
With just $60 million in assets,  Harding Loevner International Small Company (HLMSX) is undoubtedly less familiar to readers than the First Eagle offering. But the two have points in common. Like First Eagle, Harding Loevner is a shop that has long specialized in international investing. And like First Eagle Overseas, this fund's portfolio has landed squarely in blend territory for years now. So, it's in the right place.

However, there are some distinctions. Most notably, rather than pushing up against the upper limits of the category, this fund consistently lands in the lowest, small-cap portion of the style box. That makes sense, for in choosing their stocks, Robert Cresci and his comanagers look for companies with market capitalizations between $50 million and $2 billion. Another contrast: While First Eagle arrives in the blend area by having a flexible approach to value, this fund lands where it does by taking a moderate, quality-oriented approach to growth investing.  

This fund's large-cap sibling,  Harding Loevner International Equity (HLMIX) has a solid long-term record. This younger fund's history isn't as long, but it is impressive so far. Its three-year returns top the foreign small/mid-blend category, and its five-year returns land in the top quartile.

A Low-Cost Choice
 Vanguard International Explorer (VINEX) has been around since 1996, and until 2010 it was run by a single subadvisor, Schroder Investment Management. Matthew Dobbs of that firm has been lead manager since 2000. As it has done at many of its actively managed offerings, Vanguard expanded the subadvisor roster here in recent years, but on this fund the list is still small: Only one subadvisor, Wellington Management, has been added, and around 90% of the fund's assets remains in Schroder's hands.

Like the two funds mentioned above, this fund's portfolio consistently lands in the blend part of the style box, so the new category provides an appropriate home. In market-cap terms, it lands between First Eagle and Harding Loevner, inhabiting the lower part of the mid-cap box. While investors might be surprised that the prior two funds land in the blend category, this one's new home shouldn't be much of a surprise, for it has taken a moderate, middle-of-the-road approach over the years.

Its returns don't grab one's attention, landing around the middle of the new category over the long term. But it has certain long-standing attractive traits. Its moderate volatility for a small-cap fund, its low cost (especially welcome in this expensive category), and its consistent location right on the small/mid border would make it a suitable choice for many investors thinking of adding another international fund to the large-cap offering they already own.

There's More
Although the foreign small/mid-blend category has only about two dozen inhabitants, these three funds are not the only ones worthy of attention.  IVA International , managed by Charles de Vaulx and fellow First Eagle alum Chuck de Lardemelle, is closer to the value border than most funds in this group, which is not surprising given its managers' cautious approach. The portfolios of  Oakmark International Small Cap (OAKEX) used to land in value territory, but over the past three years they have consistently been in the blend box--though the fund has stayed consistently around the small/mid border in market cap. Meanwhile, one of the most noteworthy aspects of  Invesco International Small Company (IEGAX), besides its stellar record, is its managers' willingness to invest in less-common emerging markets.

All in all, while investors shouldn't think they necessarily must own an international small or mid-cap fund, those who want to do so will find plenty of interest in this new group.