A Preview of the 2014 Morningstar International-Stock Fund Manager of the Year Competition
These managers are potential contenders for this year's honor.
There are just a couple of months left in 2014, so it makes sense to see how the competitions for the Morningstar Fund Manager of the Year awards are progressing. We covered the domestic-stock asset class in this column last week. Here, we handle international equity, and we will address the other asset classes in upcoming columns.
The candidates for the Fund Manager of the Year awards must have much more than superior calendar-year returns going for them. The contenders must also boast impressive long-term records, follow sound strategies, and have a history of serving many investors well. Toward that end, I screened for actively run diversified emerging-markets, foreign-stock, and world-stock funds with Morningstar Analyst Ratings of Bronze or better, top-quartile year-to-date and 10-year returns, and at least one manager who has been in place for 10 years or more.
Nine funds met these criteria as of Oct. 29. This list includes one foreign large-growth fund and one world-stock fund that are run by the same trio of managers, while it excludes one foreign-large value offering that will lose its longest-serving manager in December and one smaller-cap world-stock fund that has mixed performance compared with category rivals and the appropriate indexes.
To be clear, this is not an official list of nominees. Any of these candidates could slip or better contenders could arise in the closing weeks of the year. Moreover, the official nominees are determined by Morningstar analysts using additional knowledge and analysis beside strict numerical screens. At this point in time, though, these managers are in good position to be considered.
Four Prior Winners Are Shining Again
The team at Gold-rated American Funds EuroPacific Growth (AEPGX) rarely struggles and regularly shines. The team, which was named the Morningstar International-Stock Manager of the Year in 1999 and 2009, has posted only one bottom-quartile finish in the past 15 calendar years while earning seven top-quartile showings, so this foreign large-blend fund boasts superior long-term returns. Meanwhile, the team's talent has been evident once again this year. Most overseas stocks have languished in 2014, but the team members, who operate independently and use a mix of strategies, have made lots of good picks in the health-care sector and the Indian market. Top-five holdings Novo Nordisk (NVO) and Novartis (NVS) have produced double-digit gains, for example, as have HDFC Bank (HDB) and Housing Development Finance Corp. Thus, this fund leads more than three fourths of its foreign large-blend rivals and has lost roughly 2 percentage points less than the group norm of 4.4% for the year through Oct. 29.
The team at Gold-rated Dodge & Cox International Stock (DODFX), which won the award in 2004, continues to impress. Indeed, the team--which takes a patient, valuation-conscious, contrarian approach--is on pace to guide this foreign large-blend fund to its eighth top-quartile performance in the past 10 years in 2014. ICICI Bank (IBN) in India, which it has owned since 2011 and added to on weakness in 2013, has soared 52% this year, while once-controversial Hewlett-Packard (HPQ), a longtime holding, has risen 28% in 2014 (after gaining 100% last year). As a result, this fund has managed to eke out a 1.1% gain and is ahead of 96% of its foreign large-blend rivals for the year to date, and its longer-term returns are excellent in both absolute and relative terms.
The team at Silver-rated Tweedy, Browne Global Value (TBGVX) has had some extended dry spells. That's largely because the team tends to be quite patient with its picks, builds cash when it cannot find enough stocks that meet its quality and other standards, and hedges all of its currency exposure (which is rare and is a major headwind when the U.S. dollar weakens). But the team has executed its distinctive discipline quite well overall, and this foreign large-value fund has excellent long-term risk-adjusted returns. And the team, which received the honors in 2000 and 2011, has been firing on all cylinders this year. Roche Holding (RHHBY) and Zurich Insurance (ZURVY) of Switzerland have posted solid gains, as have some of the team's other health-care and financial holdings, while its fully hedged currency stance has been a big tailwind as the U.S. dollar has strengthened. This fund has returned 0.4% and has fared better than nearly all of its rivals so far this year.
Rajiv Jain of Silver-rated Virtus Foreign Opportunities (JVIAX) is back in fine form. The 2012 award recipient posted terrible results at this foreign large-growth fund in 2013, as his penchant for building hefty stakes in the Indian market, and the consumer defensive sector in particular, backfired. But Jain, who focuses on steady growers, is quite patient with his picks, and Housing Development Finance Corp and many of his other Indian holdings have rebounded sharply this year. Several of his consumer defensive stocks have flourished as well. This fund is up 2.8% and is ahead of 97% of rivals for the year to date. Further, though 2013 wasn't the only time this fund has struggled, Jain has usually executed his atypical growth strategy well, and his overall record here is impressive. The fact that he has earned strong results with a similar strategy during his eight-year tenure at Silver-rated Virtus Emerging Markets Opportunities (HEMZX) is another plus.
Making Their Case for First-Time Honors
The team at Gold-rated American Funds Capital World Growth & Income (CWGIX), which has a couple of members in common with the team at EuroPacific Growth, has several factors in its favor. Its independently functioning members use an attractive mix of income-oriented strategies that keeps overall volatility moderate and gives this world-stock fund a leg up in difficult conditions. The reserved aspects of the approach have been helpful in a challenging 2014, in fact, while the team has made good picks in the health-care and other sectors, including top-five holdings Amgen (AMGN), Gilead Sciences (GILD), and Altria (MO). This fund, therefore, has returned 4% and has outpaced 81% of its counterparts for the year to date through Oct. 29. And the team's security selection has been on the mark in several but not all of the rallies of the 2000s, so this fund's long-term returns are strong, too.
Ferrill Roll, Alexander Walsh, and Peter Baughan have delivered the goods over the shorter and longer terms at Silver-rated Harding Loevner International Equity (HLMIX) and Silver-rated Harding Loevner Global Equity (HLMGX) using the same quality-growth strategy. The trio's stock selection has been good in the financial-services and health-care sectors this year. ICICI Bank, Turkiye Garanti Bankasi, Roche Holding, and Sonova (SONVY)--which both funds own in significant amounts--have all earned nice gains. Harding Loevner International Equity has lost roughly 3 percentage points less than the foreign large-growth norm of 4% and has outpaced 78% of its rivals, while Harding Loevner Global Equity has returned approximately 4 percentage points more than the world-stock average of 1% and has beaten 87% of its of its peers. Roll, Walsh, and Baughan have had their rough periods, but they have usually implemented their quality-growth strategy skillfully, and both funds have attractive long-term records.
The team at Silver-rated Invesco International Growth (AIIEX) continues to put its cautious growth strategy to good use. The team has consistently earned relatively strong results in sideways and down markets, and 2014 has been no exception. A good number of the team's health-care and technology stocks have posted solid gains in this year's challenging conditions, including top-25 holdings Shire (SHP), Teva Pharmaceutical Industries (TEVA), Taiwan Semiconductor Manufacturing (TSM), Baidu (BIDU), and Avago Technologies (AVGO). As a result, this fund has lost roughly 3 percentage points less than the foreign large-growth average of 4% and has outpaced more than three fourths of its peers. The team has produced strong results in some rallies in the past, as well as in tougher climates, so this fund has good long-term returns to go along with its superior risk scores.
Justin Thomson of Bronze-rated T. Rowe Price International Discovery (PRIDX) has demonstrated his mettle once again. Thomson employs a sound growth strategy that has a nice mix of bolder and tamer characteristics. Yes Bank of India and several of his other financial-services picks have performed very well thus far in 2014, as have Jazztel of the United Kingdom and many of his other communication-services holdings. Thus, this fund has lost approximately 4 percentage points less than the foreign small/mid-growth average of 5% and has outpaced 86% of its counterparts for the year to date. Thomson has regularly produced solid or better returns in the past--and has rarely posted poor results--so his fund has delivered attractive long-term gains while suffering relatively modest volatility.
William Samuel Rocco does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.