. . . from the archives at FundAlarm
These profiles have not been updated. The information is only accurate as of the original date of publication.
FundAlarm Annex – Fund Report
May 1, 2010
Objective
The Fund invests in small and micro cap foreign and domestic companies, though it reserves the right to put up to 35% in larger companies. Up to 90% of the portfolio may be in micro caps and up to 50% in emerging markets. Currently the US is about 40% of the portfolio which, if I’ve read the prospectus rightly, is at the high end of the anticipated range. The fund is technically non-diversified, but currently holds 330 stocks. They use quantitative screens to focus their attention, then “bottom up” analysis – including extensive, expensive company visits – to make the final selections.
Adviser
Wasatch Advisors of Salt Lake City, Utah. Wasatch has been around since 1975. It both advises the 18 Wasatch funds – including the recently acquired 1st Source funds – and manages money for high
net worth individuals and institutions. Across the board, the strength of the company lies in its ability to
invest profitably in smaller (micro- to mid-cap) companies. As of January 2010, the firm had $7 billion
in assets under management, about $5 billion of which were in their funds.
Managers
Robert Gardiner and Blake Walker. Mr. Gardiner had previously been Wasatch’s research director and managed three exceedingly strong Wasatch funds, Micro Cap, Micro Cap Value and Small Cap Value. With the launch of this fund, he gave up his other charges to focus here. Mr. Walker co-managed Wasatch International Opportunities. They both speak French. Mais oui!
Management’s Stake in the Fund
Mr. Gardiner has over a million dollars in the fund. Mr. Walker is in the $10,000 – $50,000 range, with a larger investment in his other fund.
Opening date
November 17, 2008.
Minimum investment
$2,000 for regular accounts, $1,000 for IRAs and Coverdells.
Expense ratio
1.19% for Investor class shares and 1.05% for Institutional class shares, after a waiver, on assets of $195 million, as of August 2023. There’s also a 2% redemption fee for shares held fewer than 60 days.
Comments
There’s a lot to be said for investing with specialist firms. Firms that know what they’re after and foster a culture that focuses on their core competency, tend to succeed. It’s clear that Matthews is the place to go for Asia funds. Royce is your single best bet for small cap value investing. Bridgeway is better at quant work than pretty much anyone else. And Wasatch is as close as we have to a small growth specialist. They define themselves by their expertise in the area, though they’ve purchased funds with other mandates. They promise incredibly thorough research, cross-team collaboration, and discipline in pursuit of “the World’s Best Growth Companies.”
They started with a couple very fine funds whose success drove them to quick closings. While they’ve added more flavors of funds lately – Emerging Markets Small Cap, Microcap Value, and Global Tech – their focus on great, smaller companies has remained.
Mr. Gardiner is likely one of their best managers. He ran, most famously, Wasatch Microcap from its inception through 2007. His success there was stunning. If you had invested $10,000 with Mr. Gardiner on the day he opened Micro Cap and sold on the day he retired as manager, you would have made $129,000. Put another way, your $10,000 investment would have grown by an additional $10,000 a year
for 12 years. That is almost four times more than his peers managed in the same period. Microcap Value – in which both Roy and I have personal investments – did almost as well, both during the years in which he served as mentor to the fund’s managers and afterward. His new charge is off to a similar performance: WAGOX has turned $10,000 into $20,000 from its launch at the end of 2008 to April 29, 2010. Its world-stock peers have returned about half as much.
The managers recognize that such returns are unsustainable, and seem to expect turbulence ahead. In their April 20th note to investors, Messrs. Gardiner and Walker sound a note of caution:
Given our view of the world, our main focus continues to be on quality. In each and every market, including emerging markets, we are trying to invest in what we consider to be the highest-quality
names. If the global economy ends up growing faster than we expect, stocks of high-quality companies may not lead the market, but they should do just fine. And if we see the type of subdued growth we envision, we believe high-quality stocks will do better than average.
Investing is never a sure thing. Several of Wasatch’s star funds have faded. Wasatch, here and in its
other funds, are purposefully targeting higher risk, higher return asset classes. That tends to make for “lumpy” returns: a string of great years followed by a few intensely painful ones. And Wasatch charges a lot – over 2% on average for their international and global offerings – for its services.
That said, Wasatch tends to find and keep strong employees. They’ve got a track record for “tight” closings to protect their funds. Their communications are timely and informative and, in the long run, they reward
their investors confidence.
Bottom Line
This is a choice, not an echo. Most “global” funds invest in huge, global corporations. While that dampens risk, it also tends to dampen rewards and produces rather less diversification value for a portfolio. This bold newer fund goes where virtually no one else does: tiny companies across the globe. Only Templeton Global Smaller Companies (TEMGX) – with a value bent and a hefty sales load – comes close. Folks looking for a way to add considerable diversity to the typical large/domestic/balanced portfolio really owe it to themselves to spend some time here.
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