FUND WATCH


An Under-the-Radar Overseas Fund

Elizabeth Ody

Thomas White International's low-key approach has proved consistent and rewarding.



The sexiest returns can come from the stodgiest funds. Such is the case with Thomas White International, a research-intensive, bargain-hunting fund that has gained 16.5% so far in 2007 -- near the top of funds that invest in large, undervalued foreign companies. And long-term returns are just as glamorous.

Manager Thomas White Jr.'s approach is simple and effective. He and his team look at about 140 distinct "valuation groups," each of which represents a specific industry and country or region, such as Japanese insurers or European drug makers.

Once a month the team ranks the stocks in each group by their two-year performance prospects and buys the top-rated stock in each group. White uses different standards to evaluate stocks in different industries and is constantly fine-tuning the process.

The fund's performance depends entirely on the success -- or lack thereof -- of White's stock picks. White makes no bets on countries or sectors. So, for instance, if Japanese insurance companies accounted for 1% of the fund's benchmark, the MSCI All Country Ex-US World index, the fund would have 1% of its assets in the shares of a Japanese insurer.

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White describes the fund's workings as like "an army of little ants, each lifting their part." If a stock does extraordinarily well, he'll pare back the position as it appreciates. If a stock lags badly, he'll add to his holdings unless he has new information about the company that would take it down a notch in his ranking system.

The fund returned 12% annualized over the past ten years through December 14, beating two-thirds of its peers. Counting 2007, the fund has performed in the top third of its category in ten of the 12 calendar years in which it has existed.

Like most value-oriented managers, White loves to buy stocks when they're trampled and unpopular.

For example, he bought Petrobras (formally Petroleo Brasileiro), a government-owned energy company, after the shares took a big hit in 2002 with the election to the Brazilian presidency of Luiz Inácio Lula da Silva, a candidate with anti-business leanings. The stock (symbol PBR) bottomed in October 2002 at $4 and closed on December 17 at $99.82, down 7.5% for the day.

White has had 30 years to hone his stock-picking method. He initially developed the approach in 1976 for Sir John Templeton, one of the pioneers of global investing, and started his own firm in 1992. Today the firm employs 20 analysts and runs $1 billion out of its Chicago offices. Another 40 analysts are in training in Bangalore, India, where the firm is setting up a second location.

Because the firm doesn't spend money on marketing, the mutual fund's assets are a modest $262 million. The fund (TWWDX) requires a $2,500 minimum initial investment and charges 1.44% in annual expenses.




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