Though U.S. investors have had little reason to look abroad for opportunities lately, it’s prudent to keep some of your portfolio in foreign stocks. And if that prudence led you to invest in Brown Capital Management International Small Company (BCSVX), you are no doubt happy that you did. The fund boasts a five-year annualized return that beat its peers (funds that invest in growing small and midsize foreign firms), the MSCI ACWI ex USA index (a broad foreign-stock benchmark) and the S&P 500.
The fund has a unique approach: Four managers work together, picking apart prospective holdings, and everyone must agree on decisions to buy or sell. “We’re a team, and we think the outcome is better than when one person dominates,” says comanager Daniel Boston.
It’s all part of a deep, research-driven process. The managers want to find “exceptional growth companies” (EGCs), says Boston, with four qualities: solid revenue growth; a competitive, sustainable position in its industry; executives with a vision of the future and an ability to make it happen; and profitability to fuel and sustain earnings growth. The quintessential EGC, the managers like to say, “saves time, lives, money or headaches, or it provides an exceptional value proposition to customers.”
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Just over 40 stocks fit the bill these days. Many tilt toward e-commerce, electronic payments, smart logistics, cloud adoption and innovative health care solutions. “Those trends have driven the portfolio during COVID-19 because they were accelerated by the pandemic, not disrupted,” says Boston. German health care firms Evotec and Stratec and Canadian logistics software company Kinaxis are among the fund’s top holdings.
The companies must be small—defined as $500 million or less in revenues at the time of purchase. As long as the firms remain exceptional growth companies, they stay in the fund.
Shares in Argentinian e-commerce and digital-payment company MercadoLibre, for instance, with $3.3 billion in annual revenues, have been in the fund since 2015. In fact, the managers don’t sell that often. In the fund’s five-year history, they’ve sold only seven stocks outright.
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