The median international equity manager in Pensions & Investments' Performance Evaluation Report handily outperformed the EAFE benchmark for the one-year period ended March 31.
The median international equity manager returned 8.4% in the period, while the Morgan Stanley Capital International Europe Australasia Far East Index returned 1.8%.
For longer and shorter periods, the median international equity manager in the PIPER database also outperformed EAFE.
For the three- and five-year periods ended March 31, the median manager returned 8.7% and 12.2% respectively, and for the quarter returned 0.7%. (All returns for greater than one year are annualized, while all time periods are as of March 31).
EAFE, meanwhile, returned 6.8% for the three years and 10.9% for the five years, and lost 1.5% in the first quarter.
But much of the EAFE's lagging returns can be attributed to Japan's sagging equity market, which comprises a big portion of the widely used index. The Financial Times Actuaries Japan Index was down 26.1% in the 12-month period, while every Japan-only equity manager in the PIPER database was negative for the period, with returns ranging from -8.4% to -19.6%.
Indeed, some of the top-performing managers in the period have kept their Japan allocation to a minimum, either by a specific decision or as a result of their stock-picking process.
Hake Capital Management, a small-capitalization international manager based in Scottsdale, Ariz., reported the best performing return in PIPER's international fund universe for the year ended March 31. (That universe covers both separate account and commingled fund managers).
Hake was up 32.1% in the period, and also led the universe for the quarter with a return of 9.6%.
Mark Hake, president, said the firm looks for stocks selling below book value, but with a book value that's solid and substantial, which can be an issue when dealing with the world's differing accounting standards.
One Thailand-based company in which Hake invested, Mutual Fund Public Co. Ltd., is an example of that. Mr. Hake said Thailand is in the midst of a major bear market for stocks, which has severely depressed the stock price of Mutual Fund Public, which has the largest share of the Thai mutual fund market.
As a result, the stock is "an incredible bargain," selling at 58% of its book value, with the entire company's market capitalization less than $36 million, Mr. Hake said.
He said it may take some time to make money on the investment, but "we're willing to be patient."
"There's bargains out there, but you've got to hold on to them, (you've) got to weather out the storm," he said.
Currently 40% to 45% of the portfolio is made up of Australian and New Zealand stocks, he said. Holdings include names such as Australian Oil and Gas Corp. Ltd., and Premier Investments, an Australian retailing company.
Hake owns one Japanese issue, Chubu Suisan Co. Ltd., a fishing company that might be the cheapest stock selling in Japan, Mr. Hake said. The total market capitalization was so low that one could buy the company for essentially nothing.
Johnston Schager Asset Management, New York, had the second ranking international equity return for the one-year period, reporting 24.6% for its international equity composite.
Johnston Schager also ranked third for the quarter, with a return of 8%, fifth for the three-year period, with a return of 15.7%., and fourth for the five-year period, with a return of 19.5%.
Massachusetts Mutual Life, Boston, reported the third ranking strategy, with a return of 24.4% for its international equity commingled fund, for the one-year period. Mass Mutual's fund ranked second for the quarter, with a return of 8.1%.
Brandes Investment Partners L.P., San Diego, ranked fourth for the year, with a return of 23% in its international equity composite. Brandes also ranked fifth in the first quarter, with a return of 6.3%.
Glenn Carlson, managing partner, said Brandes uses a bottom-up approach to pick stocks for investment in international.
Big contributors to Brandes' performance were heavy weightings in the telecommunications sector, and an overweighting in Europe. Companies like Daimler-Benz A.G., Alcatel Cables, Telefonica de Espana S.A., and Societa Finanziaria Telefonica SpA.
Brandes recently increased its weighting to Japan, as a result of finding some stocks that met its criteria, not as a result of a top-down decision.
Northern Cross Investments, Boston, finished fifth for the year with a return of 22.1% for its EAFE strategy. Northern Cross' EAFE strategy also ranked eighth for the quarter with a return of 4.9%, third for the three-year period with a return of 18.2%, and fifth for the five years with a return of 19%.
TT International Investment Management, London, ranked sixth for the 12 months, with a return of 20.5% in its active international equity composite. TT also finished sixth for the quarter, with a return of 5.2%; fourth for the three-year period, with 16.5%; and second for the five years, with 21.2%.
Mark Williams, partner for TT, said three primary things contributed to their performance for the one-year period: the corporate restructuring in Europe, the rise in value in "red-chip" stocks in Hong Kong, and hedging the U.S. dollar for U.S.-based clients.
The restructuring of selected European companies, in the fashion U.S. companies have, has created "a stock-picker's dream," Mr. Williams said.
Bessemer Trust Co., London, ranked seventh in the 12 months with a return of 20.4% for its international fund E.
John F.H. Trott, executive vice president for Bessemer, said that even though the firm's portfolios have benefited from the lack of exposure to the Japanese market, it bought some Japanese stocks beginning in the first quarter.
Their weighting to Japan stood at 12% at the end of the quarter, up from nothing at the beginning. Bessemer started to invest in Japan based on falling share prices that discount a number of concerns about the Japanese market, while the outlook for the economy and specific sectors has improved.
Mr. Trott noted Bessemer is overweighted in Australia and New Zealand. He said Australia share prices don't reflect that Australia is developing closer ties to the growth in Asia. Australia's industrial and financial stocks are priced at just 13 times their earnings, which might be more appropriate for the country's resource-based companies, he said.
Manager holdings are subject to change prior to publication.
PIPER data are compiled by RogersCasey & Associates, Darien, Conn.
