The prospectus for Grandeur Peak International Stalwarts (symbol GISOX, $15) lists three portfolio managers, but they’d be the first to tell you that their portfolio is the result of a much broader team effort. The boutique investment firm leans on a 25-analyst research team to generate stock ideas for its seven mutual funds (two are closed; three require new investors to purchase directly from the company). All of the funds have beaten their respective benchmarks since inception, with six of seven beating their bogeys by 2 percentage points per year or more, on average.
Launched in 2015, International Stalwarts and its sister fund, Global Stalwarts, are two of the youngest in Grandeur Peak’s lineup. They can also hold bigger companies than their siblings, which invest in small companies across the globe. The Stalwarts funds hold a mix of small companies and midsize firms that have outgrown Grandeur Peak’s other portfolios.
International Stalwarts invests nearly 86% of assets in overseas firms, with the remainder in U.S. stocks. Companies in the portfolio typically have a market capitalization (stock price times shares outstanding) of $1 billion to $10 billion, though the managers will stick with a firm if it grows bigger and they still like the stock. The team tilts the portfolio toward high-quality companies with increasing revenues, stable profit margins and healthy balance sheets. The goal is to find firms with sustainable competitive advantages, where executives can boost earnings by percentages in the low to mid teens over the next five years or more.
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The fund managers will pay up for high quality and growth potential. Stocks in the portfolio trade at an average 19 times estimated earnings, compared with 17 times for similar funds. But the managers expect International Stalwarts to hold up better than its peers during market dips. In 2018, the fund surrendered 17.7%; peers lost 19.1%, on average.
Toward the end of 2018, the managers lightened their positions in stocks that had held up well during the fourth-quarter slide and added to faster-growing names in the portfolio that had fallen in price. One such stock: Software engineering firm EPAM, which fell 16% over the quarter. The shares have returned 50.4% so far in 2019.
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