Up-and-Coming Overseas Small/Mid-Cap Funds

The foreign small/mid-cap categories aren't very big--there are less than 90 funds spread across the three groups--but they do include several older funds that have attracted lots of assets.  First Eagle Overseas (SGOVX) opened in 1993 and has more than $11.0 billion in assets, for example, while  T. Rowe Price International Discovery (PRIDX) is 24 years old and has an asset base of roughly $2.8 billion. 

Meanwhile, in the world-stock category, only a few dozen funds focus on smaller-cap stocks. But some of these have been around for decades and have received considerable attention from investors.  American Funds SMALLCAP (SMCWX) opened in 1990 and has more than $19 billion in assets, whereas Templeton Global Smaller Companies (TEMGX) is more than 30 years old and has an asset base of nearly $900 million.

However, the vast majority of the international-stock funds that concentrate on smaller-cap stocks aren't nearly as old or as big as those funds. And some of the overseas small/mid-cap offerings are quite young or small: Roughly 20% of them have opened since late 2010 and approximately 40% of them have less than $200 million in assets. Of course, whether they focus on foreign smaller caps or other types of securities, new funds often start out with little to recommend them, and older offerings can receive limited attention from investors over time for good reasons.

But some young or tiny offerings have a lot going for them. That's certainly the case with Allianz NJF International Small Cap Value , Grandeur Peak International Opportunities (GPIOX), Grandeur Peak Global Opportunities (GPGOX), and Harding Loevner International Small Companies (HLMSX).

Allianz NFJ International Small Cap Value
This foreign small/mid-cap value fund is just six months old and has a mere $5 million in assets, but its pedigree gives it a bright future. It is subadvised by a first-rate value shop, NFJ Investment Group. The NFJ team that manages the portfolio--which includes skipper Baxter Hines and firm co-founder Ben Fischer plus Paul Magnuson and Morley Campbell--all have good resumes for the task at hand. 

Further, the team employs a low-P/E and dividend-oriented strategy that is inherently sound and has earned strong long-term results at both Silver-rated Allianz NFJ International Value (AFJAX) (which is run by a team that is led by Fischer and includes Hines and Magnuson) and Silver-rated  Allianz NFJ Small Cap Value (PCVAX) (which is run by a team that is led by Fischer and includes Magnuson and Campbell). And despite its youth and tiny size, this fund is starting with a below-average expense ratio that will serve it well over time. (Please note that this fund is slated to make a very small capital-gains distribution later this week.)   

Grandeur Peak's International Opportunities and Global Opportunities
These 14-month-old siblings have a lot in their favor. For starters, they have been impressive performers so far. Grandeur Peak International Opportunities, a foreign small/mid-growth fund with $118 million in assets, has earned a 23.5% aggregate gain from its October 2011 launch through Dec. 6, 2012, versus 16.2% for the average foreign small/mid-growth offering. And Grandeur Peak Global Opportunities, a smaller-cap world-stock fund with $198 million in assets, has delivered a 22.0% aggregate gain from its October 2011 launch through Dec. 6, 2012, while the typical smaller-cap world-stock offering has produced a 13.9% aggregate return over the period (and the average world-stock fund has earned a 14.4% aggregate gain). 

What's more, there's a strong management team and a proven strategy behind these strong early results. Robert Gardiner is one of the most seasoned and skilled small-cap investors around. Indeed, prior to founding Grandeur Peak, he spent 25 years at Wasatch, where he had a long and excellent run as the lead manager of a micro-cap fund as well as shorter but successful tenures managing other small-cap offerings, including a global one. Blake Walker is another Wasatch alum who has spent a dozen years in the small-cap-investing field, including several good years managing international and global small-cap offerings. And as would be expected, Gardiner and Walker are employing the same high-quality growth strategy on these two funds that they used successfully at Wasatch. (Please note that both funds are slated to make very small distributions later this month.)  

Harding Loevner International Small Companies
This foreign small/mid-blend fund, which opened in early 2007 but still has less than $70 million in assets, makes a very good case for itself. Lead manager Robert Cresci has been in the investment field for more than 25 years, and he had plenty of portfolio-management experience before he joined Harding Loevner in 2006. Comanagers Josephine Lewis and Jafar Rizvi have good credentials as well. The three managers have a big team of foreign-stock experts supporting them, including the experienced and talented managers of Silver-rated  Harding Loevner International Equity (HLMIX),  Harding Loevner Global Equity (HLMGX), and  Harding Loevner Emerging Markets (HLEMX)

This fund's strategy is another plus: Cresci, Lewis, and Rizvi favor high-quality firms with robust growth rates, healthy balance sheets, and strong competitive positions just as their colleagues at the three Silver-rated funds do. And the trio already has executed that quality-growth discipline skillfully in a variety of market conditions. This fund has handily outpaced the average foreign small/mid-blend offering over the trailing three years, the trailing five years, and since opening in 2007. (Please note that this fund is slated to make a very small income distribution later this month.)