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Jul 13, 2018

Trade Wars? Three Funds Made Solid Profits Anyway I Business I DealBook I NYT

nytimes.com

Trade Wars? Three Funds Made Solid Profits Anyway



Despite trade tensions, some investors have prospered by focusing on international markets. Here is the business district in Hong Kong.CreditLam Yik Fei for The New York Times
With rumblings about trade wars, post-Brexit predictions of the demise of the European Union and worries over North Korean nuclear missiles, lately the world beyond the United States has hardly seemed a promising place to invest.
Yet some investors toted up solid returns in the second quarter — as well as over the last five years — by prospecting, at least partly, abroad. Here are three mutual funds that managed that feat.

Matthews China Small Companies Fund

The name of Tiffany Hsiao’s fund — Matthews China Small Companies — makes plain where she puts her shareholders’ money. China, of course, is one of the countries on which President Trump has focused much of his anti-trade ire. As a result, the United States and China have been tit-for-tatting each other with tariffs.
Ms. Hsiao, who has been lead manager of the fund since 2015, said the sorts of stocks she seeks are insulated from spats over international commerce. “Small-cap companies are more domestically focused,” she said. “They’re not typically exporters. In the United States, you see the same thing.”
She prefers the stocks of outfits that are helping Chinese companies and consumers increase their productivity. “The root of economic sustainability is that you have to grow productivity,” Ms. Hsiao said. “That’s why we’re interested in software, automation and health care.”
Her fund’s biggest recent holding, Silergy, is a bet on the development of China’s semiconductor industry. Silergy designs analog semiconductors, which are used in a wide variety of electronics.
“Semiconductors are China’s largest import, even more than oil,” Ms. Hsiao said. “So we’ve been heavily invested in semiconductor makers and designers and toolmakers for those companies.”
Ms. Hsiao also buys companies, like GenScript Biotech, offering Chinese patients the latest medical advances. GenScript performs gene synthesis and biotech research for drug makers as well as developing its own treatments, including one for multiple myeloma, a blood cancer.
“Cancer treatment is the biggest unmet need in Chinese health care,” she said. “In the U.S., if you get cancer, you’re likely to get an innovative biotech drug about 80 percent of time. In China, 65 percent of treatment is still chemotherapy.”
Image
Tiffany Hsiao, manager of the Matthews China Small Companies Fund, in San Francisco.CreditJason Henry for The New York Times
A challenge for an investor in emerging-market small caps is a dearth of the corporate disclosures and market regulation that developed-world investors take for granted. Ms. Hsiao said she compensated by sleuthing.
“I’ll interview ex-bosses and ex-co-workers,” she said. “When I visit a factory, I always ask to see the defects. How do they define a defect? If a little scratch qualifies as a defect, then I don’t think you’re going to cheat me on the numbers.”
Ms. Hsiao’s fund, which has a net expense ratio of 1.5 percent, returned 2.37 percent in the second quarter, compared with 2.9 percent for the Standard & Poor’s 500-stock index. For the five years that ended June 30, it returned an annualized average of 14.78 percent.

T. Rowe Price Global Stock Fund

David J. Eiswert, portfolio manager of T. Rowe Price Global Stock Fund, enjoys a broader remit than Ms. Hsiao: He’s free to survey the world in search of promising bets. His fund has lately invested about two-thirds of its assets in the United States.
“We’re usually overweight the U.S. because that’s where the best intellectual property is,” Mr. Eiswert said. “But after the Trump victory, we went underweight because stocks went up so much, and emerging markets were in crisis.”
Mr. Eiswert called himself a “careful contrarian” about emerging markets and said he waited for crises to buy companies he liked.
The fund’s largest emerging-market bet — the Alibaba Group, the Chinese e-commerce giant — is also its largest holding. (Alibaba is based in China but has American depositary receipts that trade in the United States.)
“Facebook, Amazon, Google — there are elements of natural monopoly in those businesses,” Mr. Eiswert said. “In China, it’s similar with Alibaba. And monopolies are good ways to make money.” Amazon, Facebook and Google’s holding company, Alphabet, are also top holdings.
The fund has a heavy slug of technology stocks — about a third of its assets, compared with only a fifth for the typical world stock fund tracked by Morningstar. That allocation may reflect Mr. Eiswert’s background: He spent about a decade as a tech analyst and tech fund manager for T. Rowe Price before taking his current post in 2012.
One of the fund’s broad themes is rooted in his thinking about a technology trend he calls “deflationary progress.”
FIVE-YEAR RETURNS
DFA Global Real Estate
Securities Portfolio
T. Rowe Price
Global Stock Fund
Matthews China
Small Companies Fund
+
125
%
+
125
%
+
125
%
+
100
+
100
+
100
+
75
+
75
+
75
+
50
+
50
+
50
+
25
+
25
+
25
0
0
0
MSCI ACWI

25

25

25
’14
’15
’16
’17
’18
’14
’15
’16
’17
’18
’14
’15
’16
’17
’18
FIVE-YEAR ANNUALIZED RETURNS
Matthews China
Small Companies Fund
DFA Global Real Estate
Securities Portfolio
T. Rowe Price
Global Stock Fund
+7.4%
+16.5%
+14.8%
Global real estate
World stock
China region
+6.2%
+9.5%
+11.6%
FIVE-YEAR RETURNS
DFA Global Real Estate
Securities Portfolio
+
125
%
+
100
+
75
+
50
+
25
0
MSCI ACWI

25
’14
’15
’16
’17
’18
FIVE-YEAR ANNUALIZED RETURNS
DFA Global Real Estate
Securities Portfolio
+7.4%
Global real estate
+6.2%
FIVE-YEAR RETURNS
T. Rowe Price
Global Stock Fund
+
125
%
+
100
+
75
+
50
+
25
0

25
’14
’15
’16
’17
’18
FIVE-YEAR ANNUALIZED RETURNS
T. Rowe Price
Global Stock Fund
+16.5%
World stock
+9.5%
FIVE-YEAR RETURNS
Matthews China
Small Companies Fund
+
125
%
+
100
+
75
+
50
+
25
0

25
’14
’15
’16
’17
’18
FIVE-YEAR ANNUALIZED RETURNS
Matthews China
Small Companies Fund
+14.8%
China region
+11.6%
“It’s one of the reasons we don’t have a lot of inflation right now,” despite steady economic growth and low unemployment in the United States, he said. With video and audio streaming, companies like Netflix and Spotify can offer far cheaper alternatives than the cable TV and purchased music they’re replacing.
“The average American pays something like $125 month for cable,” Mr. Eiswert said. “Netflix is $12 a month.” That price difference has helped to spur the growth of Netflix, which is one of the fund’s holdings.
Mr. Eiswert’s fund, with a net expense ratio of 0.84 percent, returned 3.06 percent in the second quarter and an annualized average of 16.48 percent over the last five years.

DFA Global Real Estate Securities Portfolio

The DFA Global Real Estate Securities Portfolio also invests at home and abroad; its assets are allocated about two-thirds to the United States and one-third elsewhere, with Japan and Australia topping the foreign list.
It buys mainly real estate investment trusts but can also hold stakes in two of its sibling funds — DFA Real Estate Securities Portfolio and DFA International Real Estate Securities Portfolio.
“We’re in 22 countries around the world, both developed and emerging,” said Joseph H. Chi, a fund manager and one of the leaders of portfolio management for Dimensional Fund Advisors, the fund’s parent.
The fund aims to give investors broad-based exposure to real estate. Dimensional doesn’t make many real estate investments in its other stock mutual funds because many clients already have some exposure through vacation homes and rental properties, Mr. Chi said. Its separate real estate funds let them fine-tune their overall asset allocations.
Mr. Chi said this fund didn’t make bets on individual securities, gathering up promising ones and avoiding potential laggards, but rather held a broadly diversified basket of real estate investment trusts — nearly 450 in all. The holdings are generally weighted by market capitalization — the larger a REIT’s market cap, the larger its place in the fund.
Though the fund is actively managed, it focuses on minimizing costs and generally keeps turnover very low, recently about 2 percent.
“Turnover is expensive, so we’re very cost sensitive about how we trade,” Mr. Chi said.
The fund, with a net expense ratio of 0.24 percent, returned 5.36 percent in the second quarter and an annualized average of 7.43 percent over the last five years.