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February 03, 2006 at 07:00 PM
For Barnaby Wiener, it’s cool to be cautious and stubborn. As lead manager of the $476.8-million MFS International Value Fund/A (MGIAX), once he’s selected a stock, he is reluctant to second-guess himself. “You only make one entirely objective decision on a company — that’s when you first do the work on it,” he said. “Thereafter, your opinions are swayed by emotions.” He’ll change his mind only if “the evidence is really clear.”
This stoicism keeps turnover in the fund to a relatively modest 37.0%, compared with the 71.5% average of its international equity peers. It has also gained a slight edge for the fund, which returned 24.1% (annualized) over the three years ended Dec. 30, 2005, versus the peers’ 22.0% average gain. For the five-year period, the fund rose 8.4%, versus 3.6% for the peers. For the one year period, however, the fund lagged slightly, returning 14.3%, versus the peer group’s 14.5%. The fund’s expense ratio, 1.65%, is slightly higher than the peer average of 1.55%.
Wiener describes his philosophy as “value, but not deep value.” He’s looking for companies whose share price is temporarily undervalued but whose underlying business is predictable and whose long-term potential for returns and cash flow are strong. He avoids speculative stocks and companies whose high rates of sales growth may be difficult to sustain or reliably forecast.
Wiener uses several quantitative models to screen a universe of about 2,000 non-U.S. stocks. A team of 20 analysts contributes more in-depth analysis and assists Wiener in interviewing company managers. Wiener concedes that the fund’s 134 holdings as of Dec. 30, 2005, may be more than needed to achieve diversification and can preclude meetings with companies in which the fund holds only a small stake. But they help avoid concentrating its assets. The fund’s 10 largest holdings represented only 20.6% of assets as of Dec. 30.
The fund’s performance benchmark is nominally the MSCI EAFE index, with its roughly 1,000 stocks in the developed non-U.S. markets in Europe, Australasia, and the Far East. However, the fund isn’t tied to the index’s universe of stocks nor its market cap and sector weightings. Indeed, developing markets currently represent only about 8.6% of the fund’s assets. About half that amount is invested in South Korea (which Wiener regards as a developed country in some regards). However, Wiener says he is more careful about investing in developing markets because “more can go wrong” there.
For this reason, Wiener prefers the relative safety of the developed markets. As of the end of 2005, the fund’s largest country allocations comprised U.K. (21.9%), Japan (19.2%), France (15.9%) and Germany (6.9%). The fund’s largest regional concentration is in European stocks, whose valuations he finds relatively cheap; Wiener also favors mid- and large-cap companies. The fund has 63.3% of its assets invested in large-cap stocks, 21.5% in mid-caps and 15.3% in small-caps.
He cites Nestle S.A., the fund’s largest position at 3.1% of assets, as a typical holding. “It’s a global food company operating hundreds of companies, with a stable business,” he said. “It’s hard to see an environment where it misses earnings by more than 3%.” Other top holdings include Total (TOT), Vodafone Group (VOD), Takefuji Corp., and Tokyo Gas Co. Ltd.
