William Fries: Thornburg International Value Fund

From traditional to emerging markets, the fund covers the globe and helps shareholders diversify

Thornburg International Value Fund opened in 1998, just as the Russian debt crisis and the demise of Long-Term Capital Management were about to roil equity markets worldwide. But the turmoil created amazing opportunities in its wake, and the fund took advantage of them, gaining 63% the next year.

In recent years, foreign markets have generally beat the U.S., and Thornburg has continued on its hot streak. With a 9.2% average annual return for the 2001-05 period, it trounced the benchmark Morgan Stanley Capital International EAFE Index by nearly five percentage points a year, too.

Manager William Fries, 67, who has run the fund since its inception, and co-managers Wendy Trevisani and Lei Wang, both 35, are based in Santa Fe. The fund doesn't much resemble an international index or the list of Wall Street's top global picks.

Some of its 57 holdings are traditional value plays trading at low price-earnings multiples. Others are higher-quality outfits with consistent growth or an "emerging franchise," says Fries. For example, Fries recently bought SAP (SAP), the German software giant, because it has an "unassailable leadership position" and is poised to benefit from growing corporate spending on technology.

EMERGING MARKETS.

  Thornburg managers screen for stocks that are cheap but have improving fundamentals. Last year, British retailer next Group showed up repeatedly as a bargain amidst worries that British consumers were pulling back. The Thornburg team visited the stores and chatted up management before the stock price dropped even further last fall. They bought in November, and the fund benefited when next exceeded expectations and its shares jumped by almost a third. At the end of February, it was the fund's fifth-largest holding, accounting for 2.5% of assets.

Part of Thornburg's performance comes from investments in emerging markets such as China, Mexico, and South Korea, as well as selected holdings in Japan. "We've had multiple visits to Japan, and we're optimistic about their governmental leadership and reform," says Trevisani.

Fries says he isn't concerned by the huge amounts of money U.S. investors have poured into overseas funds, which can often be seen as a sign of an overheated sector. The flows aren't the result of shareholders chasing performance. Rather, money is going back to markets that were largely ignored during the Internet bubble and its aftermath. "People finally had an 'aha' moment and suddenly remembered why they need to diversify," he says.

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