360 / 772
22
We’re adding
FMI International
FMIJX
to the
Morningstar
500
. The
5
-star fund was launched at
the end of
2010
, and it has already reached
$2
.
2
billion in assets.
Portfolio manager Pat English and team run
FMI
International using the same proven process
employed at their two domestic-equity funds that
have Morningstar Analyst Ratings of Gold. Their
low-turnover, highly concentrated approach is indif-
ferent to any index’s sector or country weightings.
Instead, bottom-up research drives stock picks, and
the team prefers durable franchises with proven
business models. English emphasizes firms’ enter-
prise value and cash flows. That’s apparent in
the fund’s lower average debt levels and price/book
ratios as well as its higher-than-average returns
on invested capital and cash flows.
The team hedges most of the fund’s currency expo-
sure to the dollar. The fund’s
1
.
00%
expense
ratio places in the lowest third of funds with similarly
distributed share classes. All managers have
some level of ownership in the fund, with English
investing more than
$1
million.
Scout International Goes Out
To make room, we are dropping
Scout International
UMBWX
, where longtime manager James Moffett
retired. We lowered the fund’s rating to Neutral. We
don’t have a track record on the new managers,
leading us to reset to Neutral.
Longleaf Partners International Downgraded
Weak performance in
2014
and early
2015
is not the
only reason that
Longleaf Partners International
’s
LLINX
Analyst Rating has been reduced to Neutral
from Bronze.
This fund has had its share of success since its
1998
inception. It held up very well during the early-
2000
s
bear market, when investors dumping pricey tech-
nology stocks flocked to the cheap shares in its value-
leaning portfolio. It also held its loss below that
of peers during the
2007
–
09
crisis and outperformed
in some rallies. However, since
2009
, it has per-
formed poorly in falling markets, and the depth of the
losses is alarming. The fund plunged
20
.
3%
in
2011
,
more than
6
percentage points worse than the foreign
large-blend Morningstar Category average and the
MSCI ACWI
ex
USA
Index. It lost
14
.
8%
in
2014
and
another
0
.
5%
in
2015
’s first quarter, both much worse
than the category and index. While the fund’s
15
-year
ranking remains high, its five- and
10
-year returns
through June
30
,
2015
, lag roughly
90%
of its group.
If those low rankings resulted merely from the fund
lagging during speculative rallies or were attributable
to cyclical downturns, they would be more under-
standable given the managers’ price-conscious strategy.
But these deep losses owed partly to serious stock-
picking errors among some large, high-conviction
holdings.
HRT
, a Brazilian energy firm, proved a disas-
trous choice because of poor drilling results and
what this fund’s managers considered unwise deci-
sions. Then
Manabi
, a private mining-related firm
also in Brazil, lost
60%
of its value in
2014
and another
46%
in
2015
’s first quarter. Both
HRT
and Manabi
once had been among the highest-weighted stocks in
the portfolio.
K
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?
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Use the list to get new in-
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FMI International Joins M500
Changes to the 500
|
Russel Kinnel
Summary of Changes
Add
Drop
FMI International
Scout International
Rating Change (downgrades)
To
From
Appleseed
‰ ´
Longleaf Partners International
‰ ´
Matthews China Investor
´ •
Metropolitan West High Yld Bnd
´ •
Wasatch Long/Short Investor
‰ ´
New Rating
To
Vanguard Global Min Volatility
´