Henderson fund aims for concentration

Having watched the as-sets under management in the Henderson International Opportunities Fund (HFOAX) double to $3.9 billion over the past year, manager Iain Clark is satisfied that the portfolio was positioned in advance to handle the flood of inflows. "To borrow one of your [American] sports analogies, we were in the zone the last couple of years," said Mr. Clark, who is based in London. "Those kinds of inflows could have been a big challenge, but in practice, it wasn't that bad," he added. "Fortunately, we had moved into bigger-cap stocks over the past few years, and the markets were quite liquid, so we were able to add to existing holdings." The structure of the fund limits the total number of positions to 60, but the inflows were more easily managed because the portfolio's average weighted market capitalization had been increased to $30 billion, from $20 billion. The size and concentrated nature of the fund make it difficult for Mr. Clark to invest in companies with less than a $1 billion market cap. But the idea is also to avoid the $100 billion mega-cap stocks "that are already owned by everybody," he said. The fund was launched in August 2001 by Henderson Investment Management Ltd., one of the United Kingdom's largest money managers, with more than $130 billion in assets. The idea behind the fund has always been to tap the best picks from managers looking specifically at investments in Asia, Japan, Europe and technology companies spanning the globe.

U.S. INVESTORS

Based on the pace of net flows, the fund appears to be meeting its marketing objective, which is to appeal to U.S. investors looking for direct, concentrated access to international markets. Recent performance has been hurt by many of the same issues that have affected markets around the world. This year through Thursday, the fund was down 7.8%. This compares with a 6.4% average decline for those funds making up the foreign-large-blend category as tracked by Morningstar Inc. of Chicago. Over the 12-month period through Thursday, the four-star-rated fund was up 4.2%, while the category average was down 1%. The three-year average return through Thursday was 16.8%, compared with a 14.9% gain for its average peer. Mr. Clark's role is to oversee the fund's five separate management teams, each of which is responsible for producing a short list of investments. A management team assigned to Asia, excluding Japan, and one of the two European management teams each are responsible for 15 stocks. The others each are responsible for picking 10 investments. Mr. Clark said it is his job to challenge the management teams. "I don't interfere, because I'm not the decision maker on stock picks, but I do decide how much of the portfolio each manager has," he said. "I have my views, and I will argue and debate, but ultimately, I leave the investment decisions to the managers."

DOLLAR DECLINE

The target allocation, which is regularly adjusted according to market conditions, is designed to have about 62% of the fund invested in Europe, 15% in Japan, 15% in Asia and 6% in global technology. The current allocation is adjusted slightly to accommodate for an above-average 6% cash position. The declining value of the U.S. dollar has played a big part in the growth of the fund, which invests through local markets with local currencies. "On balance, if you're investing from the U.S. outside of the dollar, it's been an advantage," Mr. Clark said. The repercussions of the unfolding U.S. credit problems are being felt in financial markets around the world, which has introduced a new kind of buying opportunity for the fund's various management teams, he said. "I think the markets are probably going down, but we are beginning to see some quite reasonable value in a number of stocks where they have been sold off just because they happen to be in a particular sector," Mr. Clark said. "This tells us that there is a lot of bad news out there, and the news may get worse, but this is also a time to buy some stocks at a good price." Without trying to time the bottom of the market, Mr. Clark said, the fund will keep identifying buying opportunities. "It won't protect you from the market going down, but it will place us in a good position down the road," he said. "I can't predict when the bottom will be, but I might know it when I see it." Questions? Observations? Stock tips? E-mail Jeff Benjamin at jbenjamin@investmentnews.com.