3 Funds That Could Hold Up Well if US Mega-Cap Growth Stocks Keep Stumbling

While a lot of attention is focused on US mega-cap growth stocks, other segments of the market have been quietly ticking along, at least in a relative sense. One is value stocks outside the US, which have outperformed their growth counterparts. Since the MSCI ACWI ex USA Growth Index peaked in late 2020, the MSCI ACWI ex USA Value has taken over.

A much better decade could be on the horizon based on 10-year valuation-implied returns as of December 2024 compared with the US. These non-US funds can benefit from that valuation gap, plus they’ll also provide some diversification benefits should the US large-growth Morningstar Category take a breather.

Causeway International Value CIVVX is a strong choice. The strategy seeks mispriced companies facing short-term operational problems that won’t create financial distress. With a tendency to have unusual country and sector weightings, its 55-70 stock portfolio doesn’t look much like indexes or peers. It has had a particularly low weighting in Japan for some time, and recently its exposure to technology has stood out at more than double its MSCI EAFE benchmark. This compact portfolio subsequently leads to both good and bad performance streaks. Longer term, however, it has delivered.

And we’re confident in Causeway’s leadership and investment teams, even as the firm prepares for change. Lead managers Sarah Ketterer and Harry Hartford have been in charge since founding Causeway in 2001 but will likely scale back duties as they approach retirement. Over the decades, they’ve added six other named managers in preparation.

Meanwhile, T. Rowe Price International Value Equity TRIGX enjoys a host of advantages over its rivals. Lead manager Colin McQueen employs a sound value-driven stock-selection process, pursuing companies that are out of favor owing to short-term macro, industry, or stock-specific issues but that have solid business franchises and the financial strength to recover.

McQueen is willing to let his stock selection do the talking, typically avoiding large regional, country, or sector bets when constructing a well-diversified portfolio. McQueen has exceptional support from the firm’s sizable and capable team of equity experts to call on for stock research and feedback and has produced solid results since he took the helm in mid-2019.

Another area that’s a little off the beaten path is non-US small/mid-cap; it has long done better than non-US large-cap, whereas the opposite has been true in the US, where the market has concentrated in the dominant tech stocks. Pear Tree Polaris Foreign Value Small Cap QUSOX is a good candidate to consider for capitalizing on this historical dichotomy between non-US large cap and small cap.

Subadvisor Polaris Capital Management, headed by Sumanta Biswas and Bin Xiao on this strategy, is a small group of seasoned investors plying a distinctive approach. Polaris focuses on primary investment forces—cash flows and risk premiums for equities. It screens for firms with durable cash flows and low stock prices to craft a portfolio with a mix of quality and value traits. The team strives for diversification but emphasizes areas where it finds more opportunities.

The result is a portfolio of around 70 stocks, usually with equities from 15 or more countries, but sometimes there’s a dearth of opportunities. Weightings in the portfolio tend to reflect a holding’s liquidity. With just 21 strategies in the foreign small/mid-value category, it’s a niche area for the team to take advantage of. This approach has worked well over time, though it can come with higher volatility.

This article first appeared in the March 2025 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.