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Small-Cap Trio for International Exposure
11/06/2013 9:00 am EST
We like the idea of attaining at least some of an investor's international exposure from small-caps. Foreign small-caps tend to sell more into their home markets and less into global export markets, and are therefore more independent of global macroeconomic factors, suggests Mark Salzinger, editor of The No-Load Fund Investor.
However, not every investor wants the risk of a fund that invests solely in small-caps overseas. By adding small US stocks to the mix within one global equity fund, the product's risk may be reduced.
However, there are only five or six global small-cap products in the entire universe of no-load funds. The good news is, at least three of them are worth consideration, especially if your investment horizon is at least three years.
Wasatch Global Opportunities (US:WAGOX) is managed by J.B. Taylor and Ajay Krishnan. Taylor picks the US stocks, while Krishnan picks the foreign ones.
In the three-year period ended September 30, 2013, the fund produced an annualized gain of 14.1%, among the top performers in the Global Equity category of our Performance Comparison tables.
Global Opportunities includes the small- and micro-cap companies in which Wasatch has the most conviction.
Though the fund recently offered exposure to stocks domiciled in 25 countries, Krishnan doesn't pick countries; instead, he and Taylor attempt to provide exposure to most market sectors, allowing country diversification to fall out as it may.
This strikes us as a smart strategy, partly because it enables the fund to own excellent companies that may perform well, even in weak home countries.
Grandeur Peak Global Reach (US:GPROX) was launched in June 2013, but its management team is one of the most experienced around for global small-cap investing.
Robert Gardiner, who founded Grandeur Peak Global Advisors in 2011, spent the previous quarter century at Wasatch Advisors. He is joined by fellow lead manager Blake Walker, who has worked with Gardiner since 2001, and three associate portfolio managers. The firm also includes 14 equity analysts.
Essentially, the managers are looking for small- and even micro-cap companies that are going to get big.
They want small companies that have the best products, market leadership, or some other competitive advantage on which they can hang their hats for the next five or ten years.
They also look for Fallen Angels—quality growth companies that have hit a bump in the road. Grandeur Peak wants to buy them when they are priced like value stocks, hold through a recovery as earnings growth returns.
Artisan Global Small Cap (US:ARTWX) also launched in June. The fund is managed by a very experienced team led by Mark Yockey, who joined Artisan Partners in 1995.
Yockey et al. incorporates investment themes into their process. In fact, many of their holdings fit into one or more of the following themes: demographics, technology, privatization/deregulation, outsourcing, and infrastructure.
Essentially, they are trying to find high-quality small-cap companies that will be major long-term beneficiaries of powerful trends in these areas.
They are especially interested in finding companies that will benefit from rising incomes among the masses in highly populated emerging markets.
Also, Yockey et al. appear to favor more mature companies, with slower rates of growth but also much lower valuations. Additionally, the portfolio is more focused: only 32 holdings.
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