Fund focuses on world's fast-growing markets

It is difficult to evaluate funds and strategies that haven't yet established a track record, but the Aston/Neptune International Fund (ANIIX) comes to market with a certain pedigree and a legitimate strategy for investing outside the United States. The fund, which began trading Aug. 7 with more than $1 million in seed capital, has since grown to $2.5 million through a combination of inflows and an 18.4% gain from inception through last Thursday. This compares with a 20.7% gain by the Standard & Poor's 500 stock index over that period. But short-term performance isn't the primary focus of portfolio manager Robin Geffen, who manages the fund from the London headquarters of Neptune Investment Management Ltd. on a subadvisory basis for Aston Asset Management in Chicago. The fund, which invests only in non-American companies, is managed exclusively for investors inside the United States. According to Mr. Geffen, the idea is to help U.S. investors diversify by taking advantage of some of the world's fastest-growing markets. "The United States represents half of the world's total stock market value, and we're going out to find U.S. investors the non-U.S. stocks," he said. The top-down investing strategy is borrowed directly from a global strategy that Neptune has been implementing for more than six years. The $1 billion global version of the plan is managed as an open-end-investment company for European investors. The primary difference between the more seasoned global strategy and the fledgling Aston Neptune fund is that the latter fund invests only in companies outside the United States.  By way of illustrating the performance potential of the new strategy, Mr. Geffen said that if the U.S. positions were stripped from the global strategy, it would have generated 18% annualized returns over the past five years through Oct. 11. That compares with the MSCI World Ex-U.S. Index, which averaged 15.4% over that period. That index comprises developed countries other than the United States. The mutual fund portfolio is designed to hold between 40 and 50 stocks, which are purchased either directly on local exchanges or held through global depositary receipts. The turnover rate, which can be gauged at this point only by looking at the global strategy, is expected to be about 30% annually, according to Mr. Geffen. "We do our own company evaluation models, and all of our valuation outlooks go out to between 18 and 36 months," he said. The in-house research process works by divvying up the world not by country but by global economic sectors. "It's our belief that there is always an economic cycle," Mr. Geffen said. "We want to identify the sectors that do best in those cycles." The global outlook, Mr. Geffen added, suggests a late-stage growth cycle that is enjoying a "massive boost" from the economies in Brazil, Russia, India and China — commonly referred to as the BRIC nations. The growing middle class in many developing countries is one of the primary distinctions between the current emerging-markets rally and the one that ended in 1999. "High levels of government debt brought the last emerging-markets rally to its knees," Mr. Geffen said. "But the emerging markets are in better financial shape this time around, and the boosts are coming from a variety of different places, including growing consumer demand." By 2020, there will be almost 900 million people in the BRIC countries classified as middle class by American standards, according to Neptune's research. Such explosive growth in the ranks of the middle class across the globe — estimated to eclipse the entire population of Japan, North America and the developed nations of Europe — is a "world-changing force," Mr. Geffen said. The Aston/Neptune fund is most heavily exposed to the energy, materials, consumer discretionary and consumer staples sectors. It is also underweight utilities and has zero exposure to the information technology sector. The fund gains exposure to various world markets by both direct investments in companies based in certain countries and by investing in companies that export to fast-growing nations such as China. When the research does lead to a direct investment in a company based in an emerging market, the policy is to visit that company's management at least twice a year for as long as it remains in the portfolio. "We know there's an extra layer of concern in terms of emerging markets," Mr. Geffen said. "We go to meet those companies where we think we can add value by doing so." Questions? Observations? Stock tips? E-mail Jeff Benjamin at jbenjamin@crain.com.