Alec Lucas: Gold-rated American Funds Europacific Growth and Gold-rated FMI International are both great options for exposure to non-U.S. stocks. Understanding their similarities as well as their differences can help investors decide which fund is right for them, and many may want to consider holding both as a complementary pair.
The funds’ similarities begin at the Parent level. Both are backed by advisors who are exemplary stewards. Each has built a robust investing culture characterized by stability, team-based collaboration, and a commitment to superior long-term investment results. Fees are competitive at both shops, and the funds’ managers pay those fees themselves, too, as each invests alongside shareholders in the funds themselves.
The funds differ in their mandates, approaches, and the kinds of portfolios that those different approaches give rise to. American Funds Europacific Growth is a growth-leaning fund that often has significant exposure to emerging markets, especially China. In contrast, FMI International is a value-leaning fund that largely steers clear of emerging markets and has opted not to invest in China because of concerns about its accounting and governance standards. Europacific Growth uses American’s signature multimanager approach. The fund’s massive $160 billion portfolio is divided into smaller, separately managed sleeves. Nine managers and two analyst teams in total have charge of the portfolio. Five managers come from equity subsidiary Capital World Investors and four from equity subsidiary Capital Research Global Investors. These two manager teams each draw on their own analyst teams and while they collaborate within their respective portfolio manager and analyst teams, they don’t share investment ideas across teams or across subsidiaries. This tends to enhance diversification in the fund’s 330-stock portfolio. The fund’s size, though, still makes mid-cap exposure a challenge and makes it more of a mega-cap-leaning strategy.
FMI International’s $7 billion asset base makes it much easier to hold mid-cap stocks. FMI International’s 10-person management team does not divide its portfolio into separately managed sleeves but makes decisions together. The managers build a much more concentrated portfolio of roughly 40 stocks. FMI International also distinguishes itself by systematically hedging foreign currency back to the U.S. dollar, whereas American Funds Europacific Growth’s managers have the ability to hedge but tend not to systematically make use of it.
Investors may find themselves gravitating toward one fund or the other because of their individual risk preferences, but many investors should consider holding the two funds as a complementary pair. Indeed, the two funds held together in equal proportions and regularly rebalanced would allow investors to profit from cyclicality in value versus growth stocks, foreign-developed versus emerging-markets stocks, mega-cap versus mid-cap stocks, and even the rise and fall of the U.S. dollar versus other currencies.