International "Acorns"

11/25/2005 12:00 am EST

Focus:

Walter Frank

CIO, MONEYLETTER

"We are adding two new international funds to our coverage," notes Walter Frank, a leading expert on no-load funds and the editor of MoneyLetter, which is now celebrating 26 years of publication. Here, he profiles two funds from the Columbia Acorn family,

"Columbia Wagner Asset Management has long been recognized for its strength in smaller-cap research, and Columbia Acorn International class Z (ACINX) takes advantage of this strength. The management team of Zach Egan and Louis Mendes took over the fund in September 2003. They are supported by a team of six analysts, each of whom concentrates on certain sectors, and has responsibility for selecting stocks in their respective area.

"The team looks for smaller firms with attractive growth rates. However, they don’t throw valuation to the wind. They want reasonable valuations, and also stress strong balance sheets, good cash flow, and attractive dividend yields. They generally shun the smallest stocks, and won’t load up on emerging markets issues. Stocks that make it into the portfolio tend to be proven, higher-quality issues. Recently, about 50% of the portfolio was in mid-cap names, 18% in large-caps, and the remainder in small-cap issues.

"What sets the fund part, however, it its emphasis on diversification. The fund holds more than 150 names in its portfolio, and its largest holding (Anglo Irish Bank of Ireland) accounts for only 2% of assets. Indeed, its top ten holdings account for less than 14% of the portfolio. Egan and Medes constantly monitor sector weightings to make sure the portfolio does not become too aggressive. And, it is worth noting that the managers recently have focused their attention on sectors that historically have been under-represented in the fund, resulting in even better diversification.

"In the mutual fund business, tagging the word ‘select’ onto a fund’s name often denotes a concentrated portfolio. Columbia Acorn International Select class Z (ACFFX) is no exception. In contrast to its sibling with 150 holdings, this fund holds less than a third of that amount, focusing on mid-cap companies. It follows, then, that the fund is less diversified. It’s top stock holdings account for about 5.3% of assets, and the top ten constitute 35% of the portfolio.

"Still, International Select fund shares much in common with the International fund. Chris Olson and Todd Narter have been managers here since September 2001. They use a very similar investment technique to Egan and Mendes; they look for growth companies with solid fundamentals and reasonable valuations.

"Currently, the top five country allocations in the Egan/Mendes International fund are the United Kingdom (13.3%), Japan (10.3%), France (9.7%), Germany (8.7%), and the Netherlands (8.5%). The top five country positions in the Olson/Narter Select fund are Japan (17.6%), Switzerland (12.4%), France (12%), the United Kingdom (11.5%), and Ireland (9.5%). Both ‘Z’ class funds are no-load. However, we note that both impose a 2% redemption fee on shares held for less than 60 days."

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