A Little–Known Global Fund Champ
01/19/2010 11:00 am EST
Russel Kinnel, Morningstar’s director of mutual fund research, and analyst Courtney Goethals Dobrow nominate a little-known fund for international manager of the year and decade.
Manning & Napier World Opportunities’ (NSDQ: EXWAX) managers have been nominated for Morningstar International-Stock Manager of the Year and International-Stock Manager of the Decade.
However, they have long operated with little notice. That might not be the story for long; as indicated by its asset growth, the fund is getting attention.
Assets have grown from $315 million to $4.6 billion in just three years. Management says that the fund has a ways to go before it reaches capacity limits, but if it happens, it has no qualms about closing the doors to new investors.
This fund has a terrific track record. Its three- and five-year trailing returns are in the category’s top decile. Over the past ten years, the fund has gained an annualized 8.9%, while its typical category rival only eked out a 1.0% annual gain and the MSCI EAFE Index was in the red. In six out of ten years, the fund places in the category’s top decile. It hasn’t been excessively volatile.
All Manning & Napier funds are run by the same team, and the average length of investment experience is 15 years. Several managers have 25 years of experience.
The team’s approach is distinctive, and it executes consistently. The managers characterize their approach as “borderless.” They look at the world as a business would, thinking about how companies of all sizes and domiciles in a particular industry operate on a global basis.
The managers use a bottom-up approach, focusing on absolute—not relative—value. They use discounted cash-flow models to find stocks trading at least 25% below their fair value estimates.
The stocks fit one of three profiles: The first are growth stocks with sustainable competitive advantages that the team will only scoop up when they’re trading cheaply. The second are cyclical firms with the best cost structures in their industries that the team thinks will emerge stronger from cyclical troughs as weaker rivals crumble. The third are struggling but undervalued businesses with valuable assets that the team thinks will be better utilized.
With 65 holdings, the fund is considerably more concentrated than the typical rival’s 134 stocks.
Manning & Napier are good stewards with an impressive culture. The firm, founded in 1970, is still 100% owned by full-time employees. Analysts pair up with a peer or a member of the senior research group for every stock pick, and both partners share in the pain or gain via an 80/20 split between the analyst and the partner. Picks are tracked over long periods of time and remain on their records for a long time. If picks don’t make money for shareholders, the partners don’t make money.
The fund’s expense ratio is a respectable 1.16%, below the category median. However, expenses have held relatively steady for the past few years even as assets have grown substantially.