The Artisan International Value fund is a firm favorite with professional buyers, and rightly so given its strong long- and short-term performance.
At the start of 2017, the firm added two portfolio managers to the strategy – Michael McKinnon and Joseph Vari – to work alongside lead managers Daniel O’Keefe (pictured) and David Samra, both of whom are Citywire + rated.
Although the fund clearly has value in its name and DNA, within that approach, what factors have driven performance?
We asked portfolio analytics firm Style Research, which specializes in scrutinizing holdings, to provide independent insights into this fund.
Style Research Verdict
Bernie Nelson, President, North America, Style Research
The Artisan International Value fund has delivered strong performance versus peers, being comfortably within the top quartile against Morningstar’s Foreign Large Blend peers over the past one, three and five years.
This 40-50 stock fund has consistently maintained a top-quartile level of risk versus peers over the past five calendar years, whether by stock concentration, active share, or predicted tracking error versus the MSCI ACWI Ex USA index.
The fund has typically been around 17% overweight in US equities, which is in the top 5% of the Foreign Large Blend peer group, a group that typically has zero in US equities. The fund is also typically around 15% underweight in Japanese equities versus the index. Sector weights have varied significantly although the fund has had around 20-25% invested in financials, typically less than 5% in energy and usually nothing in materials. Despite the fund maintaining a significant cash position of around 10-15%, any cash drag has been more than offset by strong stock selection and currency gains.
From a style perspective, the fund’s stated investment process describes an eclectic approach that integrates quality considerations alongside a proprietary assessment of intrinsic value. Can an independent holdings-based analysis find recognizable style signals in this fund? A Style Skyline™ evaluation for this fund (see chart) shows that there have been times over the past five years when sales to price and earnings yields (blue bars) have been higher than the index.
STYLE SKYLINE™ range - 5 years ending Dec 31 2016
Artisan International Value fund vs MSCI ACWI ex USA
However, these value Style Tilts™ have not been very significant and other value factors, such as cash flow yield and dividend yield, have been consistently negative versus the index.
On the growth and profitability side (green bars), the fund has managed to maintain a return on equity similar to the benchmark despite having significantly low net profit margin, essentially due to offsetting high asset turnover (i.e. high efficiency of revenue to assets). Assets to equity, or leverage, has been low relative to the index. In addition, gross profit margin has actually been consistently higher than the index, arguably presenting a cleaner view of true economic profitability. Quality factors have dominated value measures in this fund over the past five years.
This fund reflects an eclectic and concentrated investment approach that is not shy to deviate structurally from the benchmark index or competitors. Although there is a current market appetite to replace more expensive active managers with low cost factor-oriented funds, investors would find it very challenging to replicate this fund using smart beta or factor-oriented investment products.