TYSON: International fund continues outperformance

Staff Writer
Columbus CEO

I have long recommended the Litman Gregory Masters International fund (it used to be called Masters Select International). Litman Gregory, as you may know, is the firm that publishes the No-Load Fund Analyst newsletter, which I often reference and discuss. Its Master series of funds essentially use multiple leading managers in a given niche (e.g. international, small-cap U.S.) to manage a portion of a given fund. Within the series, their international fund has long been my favorite.

Below are the highlights from the most recent Morningstar report on this fund.

"This fund remains a top overseas option for one-stop shoppers. Litman Gregory Masters International has more than its share of strengths, but it is not without its weaknesses.

"Litman Gregory, which specializes in multi-manager offerings, has assembled an impressive roster of talent at this foreign large-blend fund. It allocates the assets equally among seven well-respected sub-advisers: Harris, Thornburg, Marsico, Third Avenue, Northern Cross, Lazard and Wellington. And the individual managers from those shops that are making the picks here are quite seasoned and skilled overall.

"The septet of skippers employs a diverse array of strategies that are inherently sound and complement each other well. While some multimanager funds are so diversified that they have dull portfolios, that's certainly not a problem here. All the managers cast a wide net and have the courage of their convictions - and Litman Gregory limits them to eight to 15 picks each - so this fund consistently stands out from the foreign large-blend crowd in several respects. Indeed, it regularly has a relatively modest average market cap and a relatively hefty emerging-markets stake, and it often owns several lesser-known large-cap stocks and has sizable stakes in a few of the smaller developed markets.

"This fund has benefited from its wide-ranging but distinctive strategy thus far in 2013, and in most past rallies. It boasts excellent long-term returns and it remains one of the best all-in-one foreign offerings around. But interested investors should recognize that it has posted uninspiring results in down markets and that its taste for smaller-cap and emerging-markets stocks come with risks. Such investors should also note that this fund's larger and cheaper share class is somewhat less accessible than it used to be, due to an increase in its minimum initial investment.

"This fund posted a 17.2 percent gain for the year to date through Oct. 15 while the typical foreign large-blend offering returned 13.9 percent and its benchmark, the S&P Global ex USA LargeMidCap Index, gained 12.5 percent. This year is no fluke. Since opening in 1997, this fund has generally outperformed in rallies. It comfortably outpaced the average foreign large-blend fund and the S&P Global ex USA LargeMidCap Index in 2012, thanks to the quality of the managers' picks in Europe and elsewhere. And it returned 15.9 percent in 2010's surge, while its typical peer gained 10.6 percent and the index returned 11.9 percent, as many of the managers' industrial, consumer-related, and other holdings thrived.

"Thus, despite often posting so-so results in sell-offs, the fund boasts strong returns over the three-, five-, 10-, and 15-year periods. It delivered a 10.2 percent annualized return over the past 15 years, while the typical foreign large-blend offering posted a 5.9 percent annualized gain and the S&P Global ex USA LargeMidCap Index earned a 7.1 percent return.

Litman Gregory recently increased the minimum initial investments for regular and other accounts in this Institutional share class of the fund from $10,000 to $100,000. Thus, while it used to make sense to compare the costs of this share class with those of similar no load funds as well as to those of similar institutional funds, only the latter comparison makes sense now. This share class had an expense ratio of 1.15 percent as of its latest annual report, which is 15 basis points higher than the median for institutional foreign large-cap funds and receives an Above Average fee rating.

"Meanwhile, the investor share class has an 1.40 percent expense ratio as of its latest annual report, which is 29 basis points higher than the median for no-load foreign large-cap funds and receives a High fee rating."