George Greig says his biggest problem in running the William Blair International Growth Fund is convincing more investors that there's money to be made abroad.
"People are still focused on the opportunities in the U.S."--where the Standard & Poor's 500-stock index has returned an average 28 percent the past five years--Greig said. "I don't think too many individual investors feel like the U.S. has gotten boring."
Still, he's managed to find enough exciting investments elsewhere in the world to propel his fund to a 76.6 percent return this year--almost five times the performance of the S&P and even ahead of the hot Nasdaq composite index, which is up 64 percent.
"The world outside the U.S. is 70 percent of the global economy, so having 20 percent of your portfolio there is not that much," Greig said.
For markets outside the United States, the Morgan Stanley Europe Australasia and Far East index is up 20 percent. Greig identifies three reasons why his $270 million fund quadrupled the international benchmark: overweighting emerging markets, early and heavy buying of Japanese growth stocks, and large positions in telecommunications and technology issues, which in much of the world have mirrored their performance in the United States. Indeed, Greig, 47, believes that between choosing a top-performing country and top-performing company, he's more inclined to look for a good company wherever it might be found.
"We look for the ability of a company to create and sustain growth and we are looking for this financially, managerially and in terms of product and marketing capability," he said.
Still, country performances can't be ignored when scouring the world for growth stocks.
"This year you really did need to be aware of what was going on in Japan," Greig said. "It would have been harder to keep up if you were not paying attention to Japan."
Japan, which has propelled both the Warburg Pincus Japan Small Company Fund and the Fidelity Japan Small Companies Fund to returns of more than 200 percent, has also been one of Greig's biggest bets, with more than 20 percent of his investments there.
Three of the fund's top 10 holdings as of last week were Japanese companies, constituting almost 8 percent of the fund's assets.
Although some of the explosive growth in U.S. markets has been in smaller company stocks, especially technology and Internet shares, many of the biggest growth issues in most of the rest of the world are the big brand names.
"For the most part, funds are still looking at the large-cap index names, certainly in Europe and emerging markets," Greig said.
The biggest holdings in the William Blair International Growth Fund include such name brands as Finland's Nokia Oyj, the international telecommunications company that's risen 266 percent in the past year, Britain's Hays PLC, up 110 percent, and Japan's Sony Corp., up 151 percent.
But Greig's biggest success has become a brand name only recently, and certainly not when he bought it at $17 to $18 a share in March 1998. Back then it was called JDS Fitel Inc., a Canadian company. Today, acquired in July by Uniphase Corp. it's called JDS Uniphase Corp. The manufacturer of fiber-optic components for telecommuniciations and cable television systems now trades at $244 a share.
"We've sold some," Greig said, and will probably have to sell more since the company now has its headquarters in San Jose and is no longer truly a foreign company.
Greig also still owns shares in a French biotech company that's his biggest regret. Genset SA specializes in human genome technology. Its American depositary receipts have fallen from a high of $30.50 in October 1998 to $13 today. Greig's average cost was $25.
"I thought they had the strongest approach in the industry to targeting identification and function of particular genes," Greig said. "We missed the fact that it was really too far away from commercial fruition."
Although many Genset investors have become frustrated, Greig's still hanging on, believing "the company is making progress." It's one advantage, he said, of getting to know management and corporations well and staying in touch.
The biggest risk of the William Blair International Growth Fund is not the "international" in its name, but the "growth."
Greig sees nothing on the horizon that could substantially affect any large region of the world. But highflying growth stocks could go through some difficult times in the United States and abroad. "It's really a question of companies and sectors, rather than countries," he said.
That's especially evident in the fund's volatile performance. While it's never lost money, it underperformed the S&P 500 by 13 to 30 percentage points every year from 1994 through 1998. Over the past five years, it returned an average of 20.6 percent a year, compared with the average 28.2 percent of the S&P.
This year has been an entirely different story. So far the fund has returned 76.6 percent, compared with a 15.9 percent return for the S&P.
The William Blair International Growth Fund is a no-load fund with a total expense ratio of 1.36 percent, compared with 1.71 percent for the average foreign stock fund, according to Morningstar Inc., the Chicago-based research firm.
The fund paid no capital gains distribution last year and an income distribution of 2 cents a share.