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White Papers

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

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.


Emerging Markets Update: What’s Up with China?

As you’ve likely noticed, China’s Shanghai Composite Index and Hong Kong’s Hang Seng Index have risen dramatically.  So what’s going on?  This commentary discusses the two main factors that we believe are influencing Chinese stock prices.  The commentary also discusses Wasatch’s investment approach with respect to China and Hong Kong.

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)

The Case for Global Small Caps: Opportunities, Challenges and Some Surprising Statistics

Around the world, among both institutional and retail investors, there seems to be a common approach to allocating assets.  What’s frequently found is that investors choose a certain percentage to invest in equities, and then divide the equity portion in two:  about half going to domestic (home-country) stocks and the other half going to international stocks.  This creates a global portfolio.  Unfortunately, the portfolio may not offer the best diversification or return potential.  This paper discusses why there may be better ways to approach a global portfolio, ways in which domestic stocks are given less emphasis and international small caps — both in developed and emerging markets — are more heavily weighted.

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 best growth companies throughout the U.S. and, to a lesser extent, in other countries.  Jim is a member of that team.  So when stock prices falter due to the volatility inherent in small companies, he is 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)

LS Whitepaper

Long/Short Fund: Seeking Equity-Like Returns with Less Volatility and Risk

Alternative investments have been gaining favor over the past several years as investors seek to increase portfolio diversification and reduce overall volatility.  While traditional investments such as stocks, bonds and money market securities have long been accessible to all investors through mutual funds, alternative strategies had been accessible mainly to institutions and wealthy individuals through hedge funds and limited partnerships.  “Alternative” strategies include those that employ short-selling or arbitrage and those investing in commodities, currencies or futures.  Today, these alternative investment strategies are also available through mutual funds, providing shareholders with more transparency, smaller minimum purchases, lower fees and daily liquidity.  This paper discusses the Wasatch Long/Short Fund (FMLSX), which is an alternative investment that uses short-selling to seek a different source of returns and reduce volatility.

Wasatch Fund Highlighted:  Wasatch Long/Short Fund (FMLSX)

World Innovators Fund: Finding the World’s Innovative Companies

Innovation is the force that sustains economic growth, said 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)


Micro Cap Value Fund: Exploiting Market Inefficiencies

With principal offices in Texas, First Cash Financial operates over 1,000 pawn shops in 13 U.S. states and 29 states in Mexico.  Based in Israel, Caesarstone is a leading manufacturer and distributor of quartz countertops for kitchens.  Headquartered in San Diego, BofI Holding (Bank of Internet) is an online-only bank with nearly $5 billion in assets.  None of these companies is a household name.  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)


Emerging Markets Small Cap Fund: Targeting High-Quality Small-Cap Growth Companies in Emerging Markets

Traditional emerging-market equity portfolios often are skewed toward countries and companies with large market capitalizations.  For example, over 55% of the MSCI Emerging Markets Index is represented by its four most heavily weighted countries — China, Korea, Taiwan and Brazil.  While there’s nothing inherently wrong with investing in larger, more-established markets and businesses, the largest companies in emerging markets tend to be exporters of products to the developed world.  The equity securities of such companies can behave more like developed-country investments and may provide little exposure to the home countries.  Moreover, we believe the “large versus small” decision should be driven by the relative attractiveness of investment opportunities — not by popularity or convenience.  This paper discusses the Wasatch Emerging Markets Small Cap Fund’s approach to the emerging-market universe.

Wasatch Funds Highlighted:  Wasatch Emerging Markets Small Cap Fund (WAEMX)  

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)

WAGOX Whitepaper

Global Opportunities Fund: Investing in Wasatch’s Best Ideas From Around the Globe

Despite offering the potential for attractive returns and diversification (which could reduce overall portfolio volatility), global small/micro-cap investing is often overlooked by both institutions and individuals.  The sheer number of small- and micro-cap companies — greater than 7,000 in the U.S. and abroad — versus the paucity of analysts who follow them makes it difficult to identify some of the best prospects.  Relatively few portfolio managers have the resources necessary to consistently uncover compelling investments in this space.  For those with access to substantial worldwide research capabilities, however, there are opportunities to find reasonably priced small- and micro-cap companies with significant growth potential before they are widely recognized in the marketplace.  This paper discusses the Global Opportunities Fund, which can be described as “The Best of Wasatch.”

Wasatch Fund Highlighted:  Wasatch Global Opportunities Fund (WAGOX)

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)


Frontier Emerging Small Countries Fund: Trekking Across the Frontier for High-Quality Growth Companies

We believe frontier markets are in the early stages of a potentially long-term investment cycle.  Frontier countries currently account for 21.6% of the world’s population, 6% of its nominal gross domestic product (GDP), and only 3.1% of world market capitalization.  Large, young populations are driving urbanization and a growing middle class.  Meanwhile, as burdensome regulations and taxation within the developed world continue to escalate, there is every reason to believe outsourcing and globalization trends will continue to create jobs and drive growth toward frontier markets.  This paper discusses how the Wasatch Frontier Emerging Small Countries Fund ventures the furthest afield of all Wasatch funds by targeting frontier markets and emerging small countries.

Wasatch Funds Highlighted:  Wasatch Frontier Emerging Small Countries Fund (WAFMX)


Africa: A Bright Outlook for the Dark Continent

In his book Through the Dark Continent, journalist and explorer Henry Morton Stanley was among the first to designate Africa “The Dark Continent.” This romantic name reflected the fact that, despite its proximity to Europe, Africa was a largely unknown and mysterious area of the world to 19th-century Europeans. Perceptions of Africa as a backward, undeveloped land of harsh terrain and dim prospects have been slow to change. The truth is that Africa has made significant advancements in recent years, and each incremental improvement unlocks the potential for future improvement. In stark contrast to the notion of a dark continent, Africa today is home to millions of bright, motivated people whose primary goal is to seek better lives for themselves and their families. This paper discusses why outdated attitudes and perceptions about Africa have created what we believe are significant opportunities for investors willing to roll up their sleeves and put boots on the ground.

Wasatch Funds Highlighted:  Wasatch Frontier Emerging Small Countries Fund (WAFMX)Wasatch Emerging Markets Select Fund (WAESX) ; Wasatch International Opportunities Fund (WAIOX)

Manager Perspectives

Manager Perspectives: Where Do Small Caps Stand?

Jeff Cardon and JB Taylor, Portfolio Managers of the Wasatch Small Cap Growth Fund, talk at length about the markets, quality small-cap growth companies, and sticking to the Wasatch investment process.


Wasatch Fund Highlighted:  Wasatch Small Cap Growth Fund (WAAEX)