Longleaf Partners International: Reopening to New Investors
Recent turbulence in foreign stock markets has created buying opportunities. That, say the managers of Longleaf Partners International, is why the fund is reopening to new investors, effective immediately. "The recent volatility in markets around the globe has produced additional high-quality companies that are adequately discounted, and a number of existing holdings are attractively priced," says Mason Hawkins, co-manager of the $3-billion fund.
The fund, which holds just 19 stocks, is coming off a period of relatively sluggish performance. It has trailed the average diversified overseas fund (excluding small-company foreign funds) in each of the past three calendar years. That followed a period during which Longleaf clobbered the competition in four consecutive years. Over the past five years through June 30, Longleaf returned 8% annualized, compared with 10% for the average diversified international stock fund.
One reason for Longleaf's underperformance is its policy of partially hedging exposure to foreign currency. That helps when the dollar is strong but hurts it when the buck is weak, as it was in 2004 and the first half of 2006. "However, due to the fund's concentrated nature, specific stocks affect this fund the most -- and its strategy is deeply contrarian," says Morningstar analyst Arijit Dutta.
When Longleaf International closed in 2004, fund managers Hawkins, Staley Cates and Andrew McDermott said they weren't finding many compelling investing opportunities overseas among large, undervalued companies. But lately, the trio has been putting cash to work, and they have reduced the fund's cash level from more than 30% to less than 5%.
As of the end of March, the fund's top five holdings were Japanese companies NipponKoa and Olympus, Canadian cable operator Shaw Communications, Mexican cement producer Cemex, and Dutch electronics company Philips Electronics. Longleaf's managers, all of whom have been with the fund since its 1998 inception, look for stocks that trade at 40% or more below their estimate of the underlying company's value.
The fund (symbol LLINX; 800-445-9869) levies no sales fee and charges 1.64% in annual expenses, which is on par with the average diversified international fund. The initial minimum investment is $10,000.
Although we wish the fund's expenses were a bit lower, we're partial to the Longleaf Partners family. The firm does treat its shareholders like partners, something that can be seen in its willingness to close funds to new investors, even when that means less revenue. In fact, until International's reopening, all three Longleaf funds were closed to new investors. If you don't mind a concentrated approach to stock-picking or the fund's currency-hedging policies, Longleaf International is a solid choice for your overseas money.