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When a bull market runs for as long as this one has, it
becomes especially prudent to look closely at what’s
been out of favor in the hopes that you can find some-
thing with still decent return potential. The foreign
large-value Morningstar Category certainly fits the bill.
Of Morningstar’s 15 categories of diversified all-equity
funds, this one was the worst performer during the
trailing five years through September, gaining just 6.3%
annualized. Compare that with the 10.7% gain of
foreign small/mid-growth funds, and the 13.9%-plus
gains of all nine U.S. categories. There aren’t many
foreign large-value Morningstar Medalists in the
Morningstar 500, as the Morningstar Style Box has
skewed a bit toward growth, particularly among
foreign funds. So we’ll include some value-oriented
funds in the foreign large-blend category—which
happens to be the second-worst performer among the
15 categories. Moving to value has led to poor
recent performance for those blend funds, but their
managers are generally proved right if early. I’ll go
from left to right in the style box based on the funds’
current positioning.
Causeway International Value CIVVX , which earns
a Morningstar Analyst Rating of Gold, has struggled
of late along with most value funds. (Although this
fund is in the foreign large-blend category, its recent
portfolios have been in the value column.) The
managers have gone to the cheapest parts of the
market, leading to above-average stakes in energy,
materials, telecom, and banks that hurt the fund
badly in 2014 and 2015. And while the former two
sectors have rebounded this year, the fund has still
been hurt by other picks, including three Japanese
stocks: East Japan Railway, Hitachi, and Sumitomo
Mitsui Financial. Performance is still strong during
the past five and 10 years, however, and the three
lead managers have been at the helm since the
fund’s late- 2001 inception.
David Herro has led Gold-rated Oakmark International
OAKIX since its 1992 inception, and although
veteran comanager Rob Taylor retired on Sept. 30, its
prospects remain bright. A hefty weighting in Euro-
pean banks (the fund’s overall financials stake nearly
doubles the 17.7% foreign large-blend norm) has hurt
performance during the past three years, but Herro
has continued to demonstrate conviction in most of
his picks. It has slumped before only to rebound
sharply, as its stellar long-term record demonstrates.
Like the Causeway and Oakmark funds, Dodge & Cox
International DODFX is a Gold-rated foreign large-
blend fund that has lately landed in the value column.
However, other than a dreadful 2015 campaign that
owed primarily to a large stake in emerging markets
(which were clobbered), the fund has held up quite
well. It’s owned some of the traditional value fare that
has dinged its peers, such as automakers BMW
BMW and Honda and European banks Barclays BARC
and Credit Suisse CSGN. But those losses have been
offset in 2016 by the tailwind from a sizable weighting
in tech. The fund’s long-term record is superb, and
its low costs and deep management team continue to
warrant a Gold rating.
Bronze-rated Vanguard International Value VTRIX
spreads its assets across three value-oriented subadvi-
sors. That broad diversification means it’s rarely at
the top or bottom of the foreign large-value category.
An above-average weighting in emerging markets
dented returns in 2015, but the fund has otherwise
held up pretty well in a tough environment for value
investing. Low costs have led to fine long-term returns.
Tweedy, Browne Global Value’s TBGVX policy of
hedging back to the dollar means its performance can
vary widely from its peer group. That’s been a huge
tailwind lately. However, the fund has substantially
lagged its benchmark, the MSCI EAFE 100% Hedged
Index, as the fund has made a contrarian move away
from high-quality fare and into arguably cheaper
areas such as banks and insurance companies. But
the fund has still trounced that index over the long
haul, and a veteran team and proven approach earn
the fund a Silver rating. K
Contact Greg Carlson at
Foreign Large-Value Funds
Hope to Rebound
Tracking Morningstar Analyst Ratings | Greg Carlson
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for thoroughness and consistency.