A Safe Harbor for Global Investors?
03/16/2009 11:23 am EST
Russel Kinnel, editor of Morningstar FundInvestor, and analyst Arijit Dutta like an international value fund with stellar long-term returns and a seasoned management team.
Harbor International Fund (HAINX) remains as resourceful as ever. This Analyst Pick finished 2008 in a rough stretch, but things could have gotten even worse. The portfolio's massive overweighting in industrial-materials and energy stocks was a great advantage through midyear, when those were the only sectors that held up amid the market slump.
Later in the year, though, commodity and energy prices fell off a cliff as the mushrooming financial crisis threatened a painful global economic slowdown. The fund gave up significant ground as a result. Still, the fund's 43% loss in 2008, while not pretty in absolute terms, at least landed it close to the foreign large-value category average. This foreign large-value [four-star-rated fund] offers a powerful blend of experienced management, consistent process, and great execution.
Management did well to temper the portfolio's bold sector bets with some defensive stocks and some precautionary cash. Hakan Castegren, who has run this fund since its 1987 inception, is the longest-serving manager in the foreign large-value group and the third-longest-serving foreign large-cap manager overall. He was named Morningstar International-Fund Manager of the Year in 1996 and 2007.
Castegren looks for undervalued large caps that have strong franchises, good restructuring plans, or other reasons to be optimistic about their earnings prospects. In addition, he considers macroeconomic factors and industry themes. He also has a long investment horizon and rarely hedges the fund's currency exposure.
Thorough fundamental analysis complements top-down themes here. Management keeps track of macroeconomic trends and identifies sectors and industries most likely to benefit from them. The effort here is to spot secular, long-term investing themes well before they have gained momentum and to execute them through carefully chosen stocks.
As the portfolio's 17% turnover (one of the lowest in the category) suggests, management is willing to stick with its themes and stock selections through thick and thin. The best example in the current portfolio is its emphasis on industrial materials and energy stocks-the current combined stake of 40% in those two sectors is almost double the category average.
Representative stocks include Petrobras (NYSE: PBR) of Brazil, which has one of the largest proven oil reserves in the world, and mining giant BHP Billiton (NYSE: BHP). According to management, these companies have the industry leadership and financial wherewithal to survive business cycles.
The fund has a long and excellent track record-its trailing three-, five-, and ten-year trailing returns are all within or close to the category's top decile. In recent years, the portfolio's commodity overweighting produced a string of tremendous returns from 2005 through 2007. While that bet soured majorly in the second half of 2008, the fund was at least able to keep pace with the category because of the portfolio's high-quality bias.
The investor share class charges 1.16%.