A Daring Mutual Fund Bet on European Banks

David Herro, a portfolio manager of the Oakmark International Fund, Fidelity International’s Sanjeev Shah, and Marc Halperin of Federated Investors beat 80 percent of their rivals over five years. Then they bet on European banks. Their investments in such lenders as Credit Suisse Group, Intesa Sanpaolo, and Lloyds Banking Group have plunged the three managers into the bottom third of their peer group rankings, according to data compiled by Bloomberg.

For value managers, who invest in beaten-down stocks hoping they’ll bounce back, stretches of low returns go with the territory. “How many times have we gone through a period like this when there’s blood in the streets and sheer panic?” says Halperin, manager of Federated’s $400 million International Leaders Fund “We’ve stayed the course, not panicked, and held onto the highest-quality companies at the most attractive valuations. We’ve emerged out of every crisis even stronger.”