For the managers of the Thornburg International Value Fund, troubles across the Atlantic are just weak spots in what is, overall, a solid market for overseas investments.
"Despite what you might think about soft economies in Spain and Ireland, and southern Europe generally, there is enough juice in the global economy to offset some of those slower-growing areas," said Bill Fries, co-manager of the fund from Thornburg Investment Management.
If anyone knows where to find that juice, it may well be Fries and fellow managers Wendy Trevisani and Lei Wang.
So far this year, the fund is outpacing its category average, 8.10% to 5.52%, according to data from Morningstar Inc., and it has beaten its peers for 12 consecutive years.
"They have an excellent record, and have done well in a variety of environments," said Bill Rocco, senior mutual fund analyst at Morningstar.
Fries has managed the fund since its inception in 1998; his co-managers have held their current positions since 2006.
The team runs a compact portfolio, typically holding about 60 stocks in foreign companies. Each position is meaningful, generally accounting for between 1% and 3% of the portfolio, Trevisani said. "We have positions that matter," she said. "Every stock counts with us."
Having eggs in fewer baskets is riskier, Rocco said. "But they've managed risk well and made good stock picks."
Those stocks are organized into three categories of value: basic value, consistent earners and emerging franchises.
The "broad, flexible" approach to value helps the managers fulfill the fund's mandate of protecting against down markets and participating in up markets and performing throughout market cycles, Trevisani said.
Basic value stocks, those with more exposure to cyclical companies like banks and automakers, tend to make up about 40% of the portfolio. A similar proportion is made up of consistent earners — more defensive stocks such as consumer staples and health care.
The fund's top two holdings are in the consistent earner health care camp: Teva Pharmaceuticals of Israel and Novo Nordisk, a Danish company focused on diabetes treatment.
Emerging franchise stocks, which Trevisani described as "more embryonic, faster-growing companies," are limited to 25% of the portfolio.
Like all funds with Europe in their purview, it has had to navigate around sovereign debt crises and weak economies, and it's done so largely through a bottom-up approach. The fund sold its National Bank of Greece holding after speaking with the bank's management and sizing up the austerity measures that would be required to get the country's fiscal house in order.
European financial institutions with strong balance sheets and low leverage do pass muster; the fund owns shares in Intesa SanPaolo of Italy, for instance. "We looked pretty diligently and pretty much perpetually to be satisfied that we don't have any unique exposure there," Fries said.
Not surprisingly, the fund's managers see opportunities in the growing economies of Asia.
It recently established positions in the Taiwanese phone manufacturer HTC Corp. and the Korean automaker Hyundai. The investment in Hyundai typifies the team's thorough approach to stock selection.
The managers liked the company's valuation, balance sheet and operating margins versus its peer group. Korea's relatively weak currency, which translated into competitive pricing in Asian markets, was a factor as well.
Fries got hands-on experience with Hyundai's products by traveling to Korea and driving them. But he also noted a promising new market for the cars: the U.S. "They've been penetrating the U.S. in the last year or so on the basis of their prices, and their market share is now over 4%," he said.
Once Fries and his co-managers make a pick, they're likely to stick with it for a long time: The fund's average holding period is between 18 and 24 months.
"We own companies that we think can prevail throughout cycles," he said.
Fries attributed some of the fund's success to working with his co-managers for several years — don't underestimate the power of teams, he said — and to the open and continual communication at Thornburg. Analysts and managers work near each other, "and we like to say that our investment committee is in continuous session," he said.
Geography also plays a part in how the fund is run, Trevisani said. Because the company's portfolio managers work out of Santa Fe, N.M. — not Wall Street — "we're not surrounded by all the noise," she said. "It's easy to kind of fall into a herd mentality."
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