The median international equity manager in Pensions & Investments Performance Evaluation Report underperformed the MSCI-EAFE benchmark for the second quarter of 1997.
The median international equity manager returned 11.9% in the period, while the Morgan Stanley Capital International Europe Australasia Far East Index returned 13.1%.
For longer periods, however, the median international equity manager in the PIPER database outperformed EAFE. For the one-year period ending June 30, the median manager returned 17.7%. By comparison, EAFE returned 13.2% for that same period. Over the three-year period the median international equity manager returned 12.3%, while the EAFE returned only 9.4%.
ValueQuest Ltd., an active contrarian value equity manager from Marblehead, Mass., reported the best performing return in PIPER's international equity universe for the quarter ended June 30. ValueQuest's international contrarian value equity composite had a 17.65% return for the period. For the one-year period ending June 30, the same ValueQuest composite returned 31.32%.
"We are a strictly bottom-up company, and are finding some really good value in both Europe and the Pacific Rim," explained Katharine Busboom Magrath, ValueQuest's chief investment officer. "We look to purchase securities that are substantially undervalued, and are then sold as they approach fair value. We are finding a number of such value companies in Europe as of late."
Ms. Magrath cited Rhone Poulenc SA, a French chemical/pharmaceutical company, as an example of the type of stock that attracts her firm. "That stock was up 21% in the last quarter, and is a good example of an undervalued firm," she said. Ms. Magrath added that currently her firm has approximately 13% of its holdings in France.
Japan is another area where ValueQuest is finding good undervalued stocks. "More recently, we're seeing more undervalued companies with improving long-term fundamentals in Japan," explained Ms. Magrath. "Up until the past year, stocks there have been inexpensive but haven't offered the kind of long-term strength we're now seeing."
In the Pacific Rim, ValueQuest is finding a number of good undervalued stocks in Hong Kong. "One great example of a stock that we are big on is Ka Wah Bank," explained Ms. Magrath. "We've owned it for some time now, and it was the type of stock that offered a golden opportunity for a contrarian value investor. It has a market capitalization of approximately $2.5 billion. It's run by people who are very cost-conscious, it's cheap by Hong Kong standards, and is tied to the Chinese financial administration. We were, of course, very pleased when it shot up 238% in the second quarter."
Ms. Magrath added that, unlike other investors, her firm was not overly concerned with the recent Chinese takeover in Hong Kong. "The Chinese are intelligent, well-educated people and they need capital investment to succeed," she said. "Hong Kong is one of the investment jewels of Asia, and they recognize that fact."
Ms. Magrath added that her firm maintained wide diversification of its holdings; ValueQuest is active in 27 industries, 12 economic sectors in 19 countries.
Among the other top performers in PIPER's second quarter review were two international equity portfolios from Capital Guardian Trust Co., Los Angeles. Its international, non-U.S. equity composite account returned 16.13%, while its non-US commingled fund had a 15.99% return during the period.
For the one year period ended June 30, Global Asset Management, New York, an active value equity manager, posted the highest international equity return. The company's Group Trust International Opportunities commingled fund returned 36.15% for that same period.
Another top-performing manager in PIPER's second quarter survey was Simms Capital Management, Greenwich, Conn. Simms' SCM International Equity managed account returned 15.58% for the quarter ending June 30.
"We're finding a great deal of opportunity in Europe, particularly Scandinavia and the U.K.," explained Peter Gorman, Simms' director of client services. "Telecommunications and pharmaceutical companies are two of the sectors in which we are finding good opportunities. We look for strong consumer-oriented, world-class companies." Mr. Gorman cited Nokia Corp., a telecommunications company from Finland, as an example of the type of company that his firm favors.
"Another company that we like a great deal is the French firm SGS Thomson," added Mr. Gorman. "We see it as being sort of the Intel of Europe, and one of the ones really worth exploring."
In Latin America, Simms Capital is also finding good results in the telecommunication sector.
In Mexico, a company the firm favors is Pan-American Beverage Co., a firm that Mr. Gorman characterized as having "great growth prospects" given the youthful demographics of the country.
According to Mr. Gorman, retaining diversification is a key to ongoing success in the international field. "We like multinationals as they operate in various markets and therefore an individual downturn will not have as great an effect on your stock," he said.
Mr. Gorman added: "We certainly remain highly optimistic that opportunities are still out there in the international markets, with good valuations to be found. The world is a big place, and two-thirds of the best companies are outside U.S. borders."
