Wasatch Global Value Fund® (FMIEX)  Invest in this Fund 

Investor Class | Institutional Class
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Q2 2018
U.S. Equities Posted Further Gains Despite Trade-War Fears
by David Powers, CFA, CAIA, CPA

“Energy stocks had strong gains for the quarter boosted by rising oil prices.”

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As of 10/31/17, the Wasatch Large Cap Value Fund changed its name to the Wasatch Global Value Fund. Prior to 10/31/17, the Fund's primary benchmark was the Russell 1000 Value Index.

Investments in value stocks can perform differently from other types of stocks and from the market as a whole and can continue to be undervalued by the market for long periods of time. Loss of principal is a risk of investing.
Investing in foreign securities, especially in emerging markets, entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus.

For the period ended June 30, 2018, the average annual total returns of the Wasatch Global Value Fund-Investor Class for the one-, five- and ten-year periods were 6.36%, 7.99% and 6.00%, the returns for the MSCI ACWI (All Country World Index) were 10.73%, 9.41%, and 5.80%.  Expense ratio: Gross 1.19% / Net 1.10%.


Data shows past performance, which is not indicative of future performance. Current performance may be lower or higher than the data quoted. To obtain the most recent month-end performance data available, please click on the “Performance” tab of the individual fund under the “Our Funds” section. The Advisor may absorb certain Fund expenses, without which total return would have been lower. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost.

Wasatch Funds will deduct a 2.00% redemption proceeds fee on Fund shares held 60 days or less. Performance data does not reflect the deduction of fees, including sales charges, or the taxes you would pay on fund distributions or the redemption of fund shares. Fees and taxes, if reflected, would reduce the performance quoted. Wasatch does not charge any sales fees. For more complete information including charges, risks and expenses, read the prospectus carefully.

Wasatch Funds are subject to risks, including loss of principal.


The Wasatch Global Value Fund—Investor Class rose 1.15% and outperformed its benchmark, the MSCI ACWI (All Country World Index), which returned 0.53%, in the second quarter of 2018. The Fund also bested the MSCI ACWI Value Index, which lost
-1.29% for the quarter.

U.S. equities rose 3.89% in the second quarter of 2018 as measured by the broad-based Russell 3000 Index, which compared to the -2.61% decline for international equities as gauged by the MSCI ACWI ex USA Index. U.S. market performance was supported by the combination of steady economic growth and robust corporate profits, while signs of slowing growth overseas put a damper on investor sentiment with respect to international equities. Headlines around a potential trade war were an additional source of market volatility over the quarter.

The energy sector, which benefited as the price of oil rose to nearly $70 a barrel, was the best-performing sector within the Fund’s benchmark for the quarter, while the information-technology, consumer-discretionary and health-care sectors also outperformed the benchmark’s other sectors. Financials, telecommunication services and industrials were the benchmark’s biggest laggards. More defensive, value-oriented stocks generally underperformed growth stocks as indicated by the 2.26% gain for the MSCI ACWI Growth Index versus the previously mentioned -1.29% decline for the MSCI ACWI Value Index.

The Global Value Fund benefited relative to the benchmark from an overweight to and stock selection within the energy sector. Our holdings in the real-estate and utilities sectors also added to the Fund’s relative return.

Compared to the benchmark, the Fund’s performance in the quarter was constrained by our investments in the information-technology and industrials sectors, an overweight position in the financials sector and our lack of exposure to the consumer-discretionary sector. The Fund’s holdings in the U.S., roughly half of the Fund’s assets, aided performance relative to the benchmark, as did Canada where both of our holdings produced double-digit gains. Overall, the performance of our international equities was slightly negative.

Details of the Quarter

The top contributor to the Fund’s return for the quarter was Canadian holding Suncor Energy, Inc. (SU). Suncor specializes in the development of oil sands to produce bitumen, which can be refined into higher-quality oils. Investors cheered when Suncor’s management said that two major projects would begin production ahead of schedule. Rising oil prices also boosted Suncor’s stock along with energy stocks generally. Suncor’s cash flow is poised to benefit as the company ends an investment cycle, which should help support favorable capital-allocation measures such as share buybacks and dividend increases.

EPR Properties (EPR) was the Fund’s second-best contributor. EPR is a real-estate investment trust that owns recreational and entertainment properties including megaplex theaters, amusement parks and ski areas, as well as properties leased by charter schools, private schools and early-education providers. EPR’s share price gained in the quarter as issues around a delinquent tenant that leases a number of EPR properties for education facilities were resolved to a better-than-expected end. In addition, a rebound in cinema traffic after a weak 2017 improved investor sentiment with respect to EPR. Finally, the company’s financial results experienced a one-time boost from a prepayment penalty received on a loan EPR had made in conjunction with the sale of several ski resorts to an investment-management firm.

Laboratory Corp. of America Holdings (LH) was also among the Fund’s top contributors. Lab Corp. is a leading health-care diagnostics company, and has another business segment that provides clinical-testing support to biopharmaceutical companies engaged in drug development. Investor sentiment with respect to the broader diagnostics segment has been undermined by recent cuts to reimbursement under Medicare and Medicaid. The cuts are expected to significantly pressure smaller or less-efficient providers. We view Lab Corp. as having the scale and diversification to successfully navigate these changes. We see continued upside for this holding and maintained our position.

On the downside, Netherlands-based multinational bank ING Groep NV (ING) was the Fund’s largest detractor for the quarter. The recent flattening of the yield curve has been a source of investor concern regarding banks generally. A flattening yield curve indicates that the margin between what banks pay on short-term deposits and the interest they receive on long-term loans is shrinking, which translates into lower profits for lenders. In addition, European banks have been required to increase reserves to meet new accounting standards, limiting their ability to raise dividends. Finally, political turmoil in debt-laden Italy was a worry for the European Union even as the euro area shows signs of economic slowing. We believe much of the downside potential is already reflected in ING Groep’s stock price, so we maintained our position.

Japan Airlines Co. Ltd. was also a detractor as the company saw its share price decline along with those of other industrial companies on concerns around U.S. growth having peaked. These concerns have particularly impacted airline stocks given the industry’s issues with overcapacity. In addition, Japan Airlines has been able to increase operating profits in large part by reducing costs, a strategy now threatened by the rise in energy prices and the prospect of tariffs in conjunction with the recently launched trade war. We have maintained the position as we have confidence in Japan Airlines’ generally conservative guidance and approach to capital allocation in the form of dividends and share repurchases.

Oracle Corp. (ORCL) was also weak. The enterprise-software giant’s share price declined as management, while reporting solid financial results for the most-recent quarter, sought to lower investors’ expectations for the next quarter, attributing the reduced guidance in part to the impact of currency-exchange rates. In addition, Oracle changed its financial-reporting structure—making it more difficult for investors to assess revenue growth and profit margins in its cloud-infrastructure segment. We believe Oracle is making significant progress in transitioning away from relying on hardware sales and on-premises support and toward a cloud-based subscription model. However, the company’s shares were punished in the quarter for the combination of reduced guidance and “opaque” reporting. We trimmed our position ahead of the earnings announcement and guidance but continue to hold Oracle at a meaningful weight. (Current and future holdings are subject to risk.)


The current bull market is well into its 10th year. We have been saying for some time (perhaps a little longer than we would like…) that the market cycle is closer to its end than its beginning. As a result, we have preferred a defensive-minded approach in recent quarters that we expect to be beneficial when late-cycle dynamics begin to take hold. This has included a healthy skepticism toward areas of the market trading at historically high price/earnings multiples, and a heightened focus on strong balance sheets and cash flow. With growth in Europe and other overseas economies easing, and investors wondering whether U.S. corporate earnings growth may have peaked for the current cycle, we saw signs of our conservative stance being rewarded in the second quarter.

The Fund remains tilted toward what we consider to be higher-quality companies within the large-cap value universe, as gauged by lower market sensitivity, lower valuations, higher cash flows, higher dividends, and stronger balance sheets. In terms of sectors, the Fund has overweight positions in energy, which has tended to outperform in the later stage of an economic cycle, as well as in the defensive utilities and telecommunication-services sectors. The Fund is underweight in the highly cyclical information-technology and industrials sectors and has no exposure to the consumer-discretionary or materials sectors. More broadly, we continue to believe that global large-cap value stocks are better positioned to weather late-cycle dynamics than their growth and momentum counterparts.

Thank you for the opportunity to manage your assets.


David Powers


**The MSCI ACWI (All Country World Index) captures large and mid cap representation across 23 developed market and 24 emerging market countries. With 2,499 constituents, the Index covers approximately 85% of the global investable equity opportunity set. You cannot invest in this or any index.

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indexes. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties or originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)

The Russell 1000 Value Index measures the performance of Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the largest 1,000 companies in the Russell 3000 Index. The Russell 3000 Index is an unmanaged total return index of the largest 3,000 U.S. companies based on total market capitalization. You cannot invest in this or any index.

The Wasatch Global Value Fund has been developed solely by Wasatch Advisors, Inc. The Wasatch Global Value Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies.

 All rights in the Russell 1000 Value Index vest in the relevant LSE Group company, which owns the Index. Russell ® is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license.

 The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Wasatch Global Value Fund or the suitability of the Index for the purpose to which it is being put by Wasatch Advisors, Inc.

CFA® is a trademark owned by CFA Institute.

The Wasatch Global Value Fund’s investment objectives are to seek capital appreciation and income.

A bull market is defined as a prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as the result of an economic recovery, an economic boom, or investor psychology.

The “cloud” is the internet. Cloud-computing is a model for delivering information-technology services in which resources are retrieved from the internet through web-based tools and applications, rather than from a direct connection to a server.

Earnings growth is a measure of growth in a company’s net income over a specific period, often one year.

The MSCI ACWI ex USA Index captures large- and mid-cap representation across 22 of 23 developed-market countries (excluding the United States) and 24 emerging-market countries. With 2,154 constituents, the index covers approximately 85% of the global equity opportunity set outside the U.S.

The MSCI ACWI Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 23 developed-markets countries and 24 emerging-market countries. You cannot invest directly in this or any index.

The MSCI ACWI Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 developed-markets countries and 24 emerging-market countries. You cannot invest directly in this or any index.

The price/earnings (P/E) ratio, also known as the P/E multiple, is the price of a stock divided by its earnings per share.

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

Valuation is the process of determining the current worth of an asset or company.

The yield curve is a line on a graph that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares three-month, two-year, five-year and 30-year U.S. Treasury securities. This yield curve is used as a benchmark for other interest rates, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.

The MSCI ACWI is a broad-based market index that captures large and mid-cap representation across 23 developed markets and 24 emerging markets countries.  The Index commenced operations on 01/01/2001, after the Fund commenced operations.  MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products.

  The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.  Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. 

You cannot invest directly in indexes.

View the Global Value Fund’s most current Top 10 Holdings

Portfolio holdings are subject to change at any time. References to specific securities should not be construed as recommendations by the Funds or their Advisor.

Read our Holdings Release Policy and why we have one.

CFA® is a trademark owned by CFA Institute.