100 Companies, 21 Days, 8 Countries... The Search for the "World's Best Growth Companies"(May 08, 2012)
(Click here to watch: “On the Road with the Wasatch Funds Research Team”)
As part of the extensive due diligence process at Wasatch Funds, portfolio managers Ajay Krishnan and Laura Geritz along with our team of equity analysts set out to find new investment opportunities in the first quarter of 2012. They visited over 100 companies in countries like India, Sri Lanka, Myanmar, Cambodia, Bangladesh, Laos, Thailand and Pakistan.
Trips like these are commonplace at Wasatch and are an integral part of our investment process. Portfolio managers and analysts travel extensively, getting out in the field to interview management teams and see company operations firsthand. In fact, our research analysts are on the road an average of about three months out of every year.
Wasatch’s research process begins with screening techniques to identify companies with characteristics we like, such as accelerating earnings growth and expanding margins. We then go visit what we think are the most promising companies and meet with their management teams. There’s usually a long list of companies to see in bigger markets like India, which has about 5,000 publicly traded stocks. In smaller countries, there might be only a handful of names we’re interested in, but it can be well worth the trip to visit them onsite. We think there’s no better way to get a feel for the quality of a company’s management team, which is critical to us.
Likewise, we get off the beaten path from a geographic perspective. Instead of just meeting with companies in major cities like Stockholm, for example, we’ll visit interesting businesses even if they’re 200 miles away. The executives of many foreign companies we visit tell us that Wasatch is the first U.S. investment firm to come through their doors all year. Our research team will venture anywhere in the world they see opportunity. They have journeyed to Ghana, Kenya and twice to Nigeria in the last 12 months. We believe being early in the discovery of great companies is one of the best ways we can add value for our shareholders.
We also believe that meeting with a company on its home turf is one of the best ways to verify our investment thesis and avoid potential pitfalls. This is especially true in frontier and emerging markets where there is often a lack of publicly-available information and transparency. Direct, on-the-ground contact helps us keep tabs on companies we own, and verify information on companies we would like to own. Last year, one of our senior equity analysts went to visit a farm equipment factory in mainland China. He discovered that none of the locals had heard of it. When he visited the listed address all he found was an empty building. International small cap investing comes with inherent risks and we believe this type of deep due diligence is a necessity.
Click here to view video footage of our international team’s first quarter research trip now posted to the Wasatch YouTube channel.
World's Best Growth Companies: A term coined by Wasatch Funds, these are what we believe to be the highest quality companies in or outside the United States that possess an identifiable, sustainable competitive advantage, are well managed, and are producing above-average earnings growth relative to their industry/country of origin.
Earnings growth is a measure of growth in a company’s net income over a specific period, often one year.
Investing in small cap funds will be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. Investing in foreign securities, especially in frontier and emerging markets, entails special risks, such as unstable currencies, highly volatile securities markets and political and social instability, which are described in more detail in the prospectus. Being non-diversified, WAFMX can invest a larger portion of its assets in the stocks of a limited number of companies than a diversified fund. Non-diversification increases the risk of loss to the Fund if the values of these securities decline.