International value funds have oomph, less worry


International-growth fans walloped their miserly rivals in 1998 and 1999. Indeed, the typical growth-heavy fund in the foreign-stock category gained 63 percent last year, whereas the average value-minded entry in the group returned 28 percent, as technology and telecommunication stocks left Old Economy issues in the dust.

But foreign bargain hunters have attractive long-term risk/reward profiles, despite their 1998 and 1999 woes. They often outperformed in previous years, so their 10-year annualized returns are similar to those of their growth-oriented rivals. And they have produced these competitive returns with much less volatility than their growth-heavy peers have managed.

Some international value hounds can boast of more than solid long-term returns and moderate volatility, and we've chosen our favorites, picking seven funds with intelligent strategies, topnotch managers and strong overall records.

First Eagle SoGen Overseas has one of the most talented managers around in Jean-Marie Eveillard. He won't buy a stock unless it is trading at a sizable discount to its cash flow or assets. And he keeps individual positions small and buys bonds or holds cash when stocks are too expensive. These conservative traits have made this fund the tamest member of the foreign-stock category.

Templeton Foreign is run by Mark Holowesko, another savvy cheapskate. He focuses on stocks that are trading at steep discounts to their assets or long-term earnings projections. While he is more large-cap oriented than Eveillard, he shares Eveillard's tendency to spread his portfolio across many issues and hold bonds and cash. A sizable emerging-markets stake has added to the fund's value-related woes in recent years, but there's no quarreling with its long-term record.

Lazard International Equity's John Reinsberg looks for cheap firms with catalysts for improvement. This fund's price multiples are below the foreign-stock norms, but not markedly so. Reinsberg pays little attention to emerging markets and is cautious in other ways, though, so this fund is the third most conservative of our favorites. And it has outpaced 60 percent of other foreign-stock offerings over the past five years.

Putnam International Growth & Income has a first-rate international staff that looks for undervalued firms with healthy dividends and positive corporate changes, and is not afraid to consider out-of-favor stocks in growth industries or to build sizable sector and country positions. This fund has posted some of the best returns of any foreign-value vehicle over the past three years while controlling volatility.

Harbor International is run by Hakan Castegren, who takes an aggressive approach to bargain hunting. Castegren, who favors modestly priced blue chips with ample assets or robust franchises, readily buys struggling growth stocks and lets his winners ride. Indeed, he bought Ericsson years ago when it was cheap, and he has held on to it through all its subsequent gains.

This opportunistic approach didn't pay off in 1998 or 1999, but it produced top-decile returns in nine of this fund's first 10 calendar years.

Nations International Value is run by a team that looks for large caps selling below their intrinsic values and is keen on opportunities in the developing world and growth industries such as telecommunications. This fund has outpaced the majority of foreign-stock funds since its late-1995 inception, without suffering undue volatility.

Longleaf Partners International, a newcomer, focuses on ultracheap stocks but also has bold traits. Its managers, who won't buy a firm unless it is trading at 60 percent or less of its intrinsic value, aren't shy about building big country weightings. The fund has delivered mixed results so far, but it is run by the esteemed team from Longleaf Partners, which has produced excellent results at its other charges.

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