The Wasatch International Growth Fund, run by Roger Edgley, CFA, invests in small-cap companies outside the U.S. that seem to have substantial room for growth. Researchers freely peruse both emerging and developed markets in the quest for these companies. They will likely include a company in the portfolio when it exhibits the following characteristics:
- Steady earnings growth
- Rising return on assets (ROA) trends
- High absolute levels of ROA vs. historical and peers
- Accelerating revenues
- Improving cash flows
- Positive inflections in income statement or balance sheet metrics
Second Quarter Outlook
In the one-, five- and 10-year periods ended June 30, 2013, Wasatch International Growth celebrated returns of 27.56%, 9.26% and 13.04%, respectively, compared to its benchmark MSCI AC World Ex-U.S.A. Small Cap Index returns of 15.94%, 2.65% and 11.30%.
The second quarter, however, saw the funds lose 1.35% compared to a greater 4.42% loss for the index. While problems in Europe, the UK and emerging markets began to dissipate, news of quantitative easing struck volatility into markets, Edgley said in his second quarter commentary, which could create opportunity:
“We believe developed markets will continue to stabilize and central banks will begin tapering off their monetary stimulus policies. Long-term, the less intervention by policy makers, the better market mechanisms will work, which should be good for stock pickers like Wasatch. In emerging markets, the secular drivers are still in place and we believe market sell-offs are great times for bargain hunting. We expect to find exceptional companies at reasonable values,” he said.
Edgely added nine new companies to his portfolio, for a total of 73 holdings. The largest new positions are: Hexpol AB (OSTO:HPOL B), Dunelm Group PLC (LSE:DNLM), Nac Co. Ltd. (TSE:9788) and Sartorius Stedim Biotech SA (XPAR:DIM).
Hexpol AB (OSTO:HPOL.B)
Wasatch purchased 209,006 shares of Hexpol AB in the second quarter when the price averaged SEK 392 per share. The holding has a 1.3% weight, as the largest new buy. The stock is up 17% since, to SEK 460 per share.
Hexpol is a polymers group providing polymer compounds, gaskets for plate heat exchangers and plastic and rubber wheels for forklifts and castor wheel applications. It primarily serves manufacturers, systems suppliers to the automotive and engineering industries, the energy sector and the medical equipment sector.
The company has a SEK 15.83 billion market cap, 4.96 P/E and five-year earnings per share growth of 37.3%. Its stock price, at SEK 463, is close to a 10-year high of SEK 487.50. Its P/S ratio at 2.04 is close to a five-year high of 2.15. Its dividend yield at 0.91 is close to a one-year low.
Hexpol long-term revenue and earnings history:
Dunelm Group PLC (LSE:DNLM)
Wasatch purchased 782,046 shares of Dunelm Group PLC in the second quarter when the price averaged £9 per share. This holding comprises 1.1% of the portfolio. The price rose 9% since.
Dunelm Group is a home furnishing retailer in the UK with 127 stores across the country, and a turnover of more than £400 million. It has a market cap of £1.90 billion and P/E ratio of 24.23. Its price at £9.42 is close to a 10-year high of £10.34. The company has a dividend yield of 1.53 and five-year earnings growth rate of 19.2%.
Dunelm long-term revenue and earnings history:
Nac Co. Ltd. (TSE:9788)
Wasatch purchased 505,836 shares of Nac Co. Ltd. in the second quarter when the price averaged ¥1595 per share. The holding is 0.8% of the portfolio, and the price declined 11% since.
Nac Co. is primarily a real estate business that also deals in bottled mineral water, the rental and sale of dust control products, air purification systems, pest control rental, construction product sales, and other businesses.
Nac Co. has a market cap of ¥26.4 billion and P/E of 9.61, which is close to a one-year low. Its P/B, at 0.85, is close to a three-year low of 0.8. The company has an EBITDA per share growth rate of 22.6% over the past 12 months. The dividend yield is 2.59.
Sartorius Stedim Biotech SA (XPAR:DIM)
Wasatch acquired 51,029 shares of Sartorius Stedim Biotech in the second quarter when the price averaged €101 per share. The price has increased 22% since. The holding is 0.64% of the portfolio.
Sartorius is a provider of laboratory and process technologies and equipment, with clients from the biotech, food and pharma industries, and public research institutes and labs.
Sartorius has a market cap of €2.11 billion and P/E ratio of 33.10. The P/S ratio at 3.46 is close to a 10-year high of 3.46. The price at €122.50 is close to a 10-year high. Its EBITDA per share has increased at a rate of 13.6% in five years.
The company’s long-term earnings and revenue growth history:
See more Wasatch stock picks in its portfolio here.
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