Literature
and Forms

literature and forms

White Papers

Read the latest white papers from Wasatch Funds here. Click to view the PDF document.

Japan

Japan: Land of Generational Change

For most of the 1990s and 2000s, Japan’s economy was mired in deflation, which made for a very tough backdrop for investors to make money. During the last five years, however, we’ve identified a number of positive changes—many of which have been sparked by policies introduced by Prime Minister Shinzo Abe, collectively known as “Abenomics.” Not only is Japan the largest country allocation in the international developed market universe, based on the MSCI EAFE Index, but in our view it also remains one of the most misunderstood. In this paper, we discuss some of our reasons for being optimistic regarding Japan and highlight some of the sustainable improvements we’ve been seeing in Japan’s market environment.


Emerging India

Emerging India Fund: India Is a Standout Among Emerging Markets

Wasatch Advisors has been investing in India for well over a decade.  We hope this paper will illuminate why we remain excited about the investment opportunities there.  For starters, the universe of high-quality Indian companies is broader and deeper than what we’ve found in many other emerging markets.  In China, for example, very few companies measure up to our strict criteria, and government meddling often clouds the whole investment picture.  By contrast, our on-the-ground research in India continues to provide us with a wealth of strong, well-managed companies with significant growth potential.  A democratic government underpins India’s investment environment.  The strong institutions it has built have helped the country avoid much of the political turmoil, massive borrowing, debt defaults and runaway inflation that have plagued some other emerging-market countries during the past 30 years.  We also like India’s growing middle class, young demographics and high personal savings rates.

Wasatch Fund Highlighted:  Wasatch Emerging India Fund (WAINX)


World Innovators Fund: Finding the World’s Innovative Companies

Innovation is the force that sustains economic growth, according to economist Joseph Schumpeter.  In his 1943 book Capitalism, Socialism and Democracy, Schumpeter developed and popularized the concept of “creative destruction,” the process through which existing economic order is disrupted to clear the way for future growth.  “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates,” Schumpeter wrote.  “This process of Creative Destruction is the essential fact about capitalism.  It is what capitalism consists in and what every capitalist concern has got to live in.”  This paper discusses the Wasatch World Innovators Fund’s search for companies that are engaged in and benefiting from the process of creative destruction, no matter what form it takes.

Wasatch Fund Highlighted:  Wasatch World Innovators Fund (WAGTX)


International Opportunities Fund: Rounding Out an Investment Allocation with International Micro Caps

For mutual-fund shareholders who have most of their assets invested in large-, mid- and small-cap U.S. stocks, the Wasatch International Opportunities Fund offers significant diversification benefits because the Fund only invests in non-U.S. issues and confines its holdings to micro-cap companies, which are defined as those with market capitalizations of less than $1 billion at the time of purchase.  The typical market-cap range for the Fund’s holdings is $300 million to $1.5 billion.  While this may seem like a narrow focus from a market-cap perspective, the Fund has a great deal of flexibility to invest across industries, sectors and countries—including developed markets, emerging markets and even some frontier markets.  Simply put, the Fund relies on bottom-up company research and goes where we think the best opportunities lie.  This paper describes our investment process and the qualities that make the Fund unique.

Wasatch Fund Highlighted:  Wasatch International Opportunities Fund (WAIOX)


EM 2016

Emerging Markets Update: Is Now the Time for Emerging Markets?


Although many financial pundits make their predictions for future stock returns based on past results, such an approach is dangerous in our view because it doesn’t consider valuations and can lead to missed opportunities as investors chase performance in the most-speculative areas of the markets.  Moreover, while it’s true that positive or negative price momentum can persist for a while, momentum alone isn’t usually a good indicator of longer-term investment results.  In the case of emerging markets, this paper discusses why we believe the uninspiring returns over the past five years may be contra-indicators of what lies ahead.


Small Cap Value

Small Cap Value Fund: Views From a Value Manager in a Growth Shop

What’s it like being a value manager in a growth shop?  For Jim Larkins, the Lead Portfolio Manager of the Wasatch Small Cap Value Fund (WMCVX), it’s a very natural fit.  Indeed, he says the strong growth-oriented research capabilities that Wasatch has developed since the firm’s founding in 1975 provide him with significant advantages over many other value managers.  The small-cap research team at Wasatch seeks to identify the highest-quality growth companies throughout the U.S.  Jim is a member of that team.  So when stock prices falter due to the volatility inherent in small companies, he’s prepared to purchase these same companies as value stocks, often ahead of other portfolio managers.  This paper discusses how Jim tries to exploit the inefficiencies that exist when growth stocks become value stocks.

Wasatch Fund Highlighted:  Wasatch Small Cap Value Fund (WMCVX)


WAMVX

Micro Cap Value Fund: Exploiting Market Inefficiencies


With principal offices in Texas, First Cash Financial operates over 1,200 pawn shops in 14 U.S. states and in Mexico, El Salvador and Guatemala.  Headquartered in San Diego, Bank of Internet (BofI Holding) is an online-only bank with nearly $8 billion in assets.  Based in Israel, Caesarstone is a leading manufacturer and distributor of quartz countertops for kitchens.  None of these companies are household names.  And all of them are often overlooked by investors and research analysts.  They are typical, however, of the investments in the Wasatch Micro Cap Value Fund (WAMVX) managed by Brian Bythrow.  Under his direction, the Fund invests primarily in value companies with market capitalizations of less than $1 billion.  This paper discusses Brian’s purchase and sell disciplines, along with his approach to risk-management.

Wasatch Fund Highlighted:  Wasatch Micro Cap Value Fund (WAMVX)


Currencies

Emerging Markets Update: Have Currencies Around the World Overshot Fair Value?

We think there’s a case to be made that most emerging-market currencies, along with some developed-market currencies, have seriously overshot in their weakness against the U.S. dollar.  A reversal of this trend would be very positive for emerging-market investors.  Moreover, we believe such a reversal of the five-year trend may have already started or may be close at hand. 


Intl Outlook

Investment Update: International Retrospective and Outlook

In an effort to move beyond standard communications that focus on the drivers of quarterly and annual performance, this paper offers a longer-term retrospective on international markets and our outlook for the secular changes that we expect to evolve over time.  In particular, the paper highlights the opportunities and challenges in emerging markets.


EM Innovation

Investment Update: Innovation in Emerging and Frontier Markets

While many investors consider innovation to be the province of Silicon Valley and other high-tech centers in developed markets around the world, the reality is very different.  A look at where intellectual property is being created gives us some indication that we have to broaden our horizons as investors if we want to take full advantage of the potential opportunities.  Innovation occurs in developed markets, in emerging markets, and even in frontier markets.  Moreover, innovation isn’t confined to Internet companies and other high-tech enterprises.  It’s just as prevalent among health-sciences companies that improve the quality of our lives—and among businesses that bring existing technologies to new applications.  This paper discusses three companies that we believe exemplify innovation in emerging and frontier markets.


Emerging Markets Update: China’s Currency Devaluation—What It Means to Wasatch

After years of small-scale strengthening against the U.S. dollar, the coordinated devaluation of the Chinese yuan has come when China’s economy is seeing more signs of weakness.  In our view, it’s hard to believe that the recent devaluation of the yuan will significantly help the Chinese economy.  In addition, relative to the last several years, the yuan is still strong against the euro and the yen.  This paper discusses the recent yuan devaluation and the implications if there’s more devaluation to come.


Emerging Markets Update: Can China Innovate?

There’s an ongoing debate about whether real innovation can occur in China.  Some believe that historically China has been able to copy products designed by others, but that it will likely not be able to successfully innovate given its history and a political system dominated by one party.  We believe this view is questionable.  This paper discusses less simplistic thoughts regarding the changes taking place in China.


EM Select

Emerging Markets Select Fund: A Different Approach to Investing in Emerging Markets

The typical emerging-market investment approach often focuses on larger countries, large-cap and mega-cap companies, global cyclicals, exporters to developed countries, and passive management (index products).  This paper discusses how the Wasatch Emerging Markets Select Fund takes a different approach.

Wasatch Funds Highlighted:  Wasatch Emerging Markets Select Fund (WAESX)


EM 3

Wasatch Emerging Markets Funds: Alternative Approaches for Managing Emerging-Market Equity Portfolios

The use of indexing in institutional investing has grown strongly over the last 15 years, roughly at the same time that emerging markets have become more accepted as an asset class and a destination for investors creating global portfolios.  This has meant some “leapfrogging” over the more usual chronology of a large number of active managers gaining expertise in emerging markets.  Asset owners have been indexing into equity markets that are by definition immature, representing economies and political systems that are still developing.  The focus on indexing can present opportunities for active managers.  This paper discusses three approaches for targeting inefficiencies in emerging markets, with the goal of capturing some of the investment returns missed by traditional methods.

Wasatch Funds Highlighted:  Wasatch Emerging Markets Small Cap Fund (WAEMX); Wasatch Frontier Emerging Small Countries Fund (WAFMX); Wasatch Emerging Markets Select Fund (WAESX)


FMIEX Whitepaper

Large Cap Value Fund: Looking for What Could Go Right

For David Powers, the Lead Portfolio Manager of the Wasatch Large Cap Value Fund (FMIEX), value investing is a natural extension of his contrarian world view and his accounting background.  The process that underpins Dave’s approach to value investing stands in sharp contrast to that of many growth investors, who typically purchase companies experiencing success that’s already reflected in the stock price.  Hopefully, such success will continue.  So for growth investors, the key question is often, “What could go wrong that would derail the success?”  For Dave, who frequently invests in companies that have fallen out of favor, the question is, “What could go right that other investors are not anticipating?”  As a value investor, he is looking for companies trading below their intrinsic worth that other investors have ignored, and that he believes have significant opportunities for improvement yet to be recognized in the marketplace.  This paper discusses the details of Dave’s investment process.

Wasatch Fund Highlighted:  Wasatch Large Cap Value Fund (FMIEX)