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Vanguard International Growth Outpaces its Peers
10/25/2017 5:00 am EST
Our international fund rankings show that the top funds are dominated by China funds; but then there is Vanguard International Growth (VWIGX), the highest ranked diversified international fund and the newest member of our Vanguard Conservative portfolio, notes Walter Frank, editor of MoneyLetter.
Part of its success is that it has become more growth oriented over the past year. In July 2016, it removed one of three subadvisors, making the portfolio a bit “growthier.”
Roughly 60% of the fund’s assets are managed by Baillie Gifford Overseas. The firm uses fundamental analysis to identify attractive long-term investments in high-quality companies with above-average growth. Key factors in stock selection include sustainable competitive advantage and earnings, and free cash flow growth.
The remaining assets are managed by Schroder Investment Management, which also uses bottom-up stock research, emphasizing growth at a reasonable price.
It splits its portion of the portfolio between core stocks (60%-70% of assets), and noncore large-cap stocks located in markets expected to have strong near-term returns. The former are names it expects to hold for a number of years, while the latter are short-term opportunistic plays.
The fund has significant weightings in the more growth-oriented sectors of consumer discretionary and technology. It also has an outsized (24% of assets) exposure to emerging markets compared to Morningstar’s foreign large growth category.
Within that emerging markets exposure is a nearly 19% stake in China. The fund’s top two positions, Tencent Holdings (TCEHY) and online marketplace Alibaba Group (BABA) — 5.4% and 4.9% of assets, respectively — both hail from China, and have advanced 77.6% and 96.7%, respectively, this year.
Meanwhile, the fund also commits to its best bets, with 30% of assets in its top ten holdings. It holds minimal cash. This year through September, the fund gained 37.4%, outpacing more than 90% of its category peers. Its 10.3% return for the trailing three-year period also bests more than 90% of the category.
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