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Mutual Funds

An Overseas Fund Comes on Strong

After two lousy years, Quant Foreign Value is tearing up the performance charts.

With a name like Quant Foreign Value (symbol QFVOX), you’d think that this hot fund lets computers do all the stock picking. Quant (short for quantitative) does use computers to thin the universe of 24,000 foreign stocks to about 1,000 candidates that appear cheap based on estimates of how much cash the businesses generate. At that point, however, manager Bernard Horn and his four analysts turn to good old-fashioned company analysis, traveling the globe to find about 50 stocks they think have the best prospects over the next three to five years. Horn does not hedge the fund’s currency exposure or restrict how many stocks the fund can own in a particular country or industry.

After badly lagging the MSCI EAFE index and its peers (funds that invest in large, undervalued foreign companies) in 2007 and 2008, Quant has rebounded ferociously. Between March 9 and November 6, the fund catapulted 96%. Thanks in part to the comeback, Quant has compiled a superior long-term record, too. Over the past ten years, its 7.2% annualized return outpaced the EAFE index by an average of five percentage points a year.

A big bet on British homebuilders hurt returns during the bear market but paid off big in 2009. Horn admits that he bought builders, such as Bellway and Barratt Developments, too early on the premise that the real estate market in the U.K. was in better shape than in the U.S. “We got hit more than expected, but the stocks were the best performers for us in 2009,” says Horn.