Wasatch Global Opportunities Fund® (WAGOX)  Invest in this Fund 

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Q1 2018
Team’s Visit to Japan Confirms Positive Outlook

“We see a wealth of quality companies and believe it’s still possible to find and exploit inefficiencies in the Japanese market.”

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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 March 31, 2018, the average annual total returns of the Wasatch Global Opportunities Fund  for the one-year, five-year and since inception periods were 30.46%, 10.66%, and 17.87%, and the returns for the MSCI AC World Small Cap Index were 16.21%, 10.20%, and 15.39%. Total Expense Ratio: 1.59%.


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.


Buoyed by continued synchronous global economic expansion, the Wasatch Global Opportunities Fund—Investor Class returned 5.99% for the quarter ended March 31, 2018, outperforming the benchmark MSCI ACWI (All Country World Index) Small Cap Index, which declined -0.47%. Contributions from the United States, Korea and Japan were exceptionally strong in absolute terms and relative to the benchmark.

In a departure from previous quarters, however, volatility made a notable return to the markets. Following a brief spate of choppiness in December, the Fund continued to advance sharply and smoothly in January, the beneficiary of strong gains in both health care and information technology. Passage by the U.S. Congress of the tax-reform bill at the end of December was also a plus for U.S. stocks, as it was widely perceived that the significant reduction in the U.S. corporate tax rate would free up capital that companies could deploy to reinvest in their businesses, buy back stock, increase employee wages or return money to shareholders. Profitable U.S. companies are among those seen as most likely to benefit when the reforms take effect, and we believe the Fund is well-positioned in that regard.

While January was relatively uneventful, the markets turned volatile in February, despite continued good economic news. Investor concern with the length of the current bull market, the prospect of further interest-rate hikes and the Federal Reserve’s unwinding of its balance sheet were all blamed for a volatile month that saw the U.S. market shed more than 10% of its peak January value before partially recovering. The recovery continued in March, but the combination of a Fed rate hike and the prospect of a trade war triggered by the U.S. government’s introduction of tariffs on steel and aluminum late in the month triggered a steep sell-off. Because smaller U.S. companies typically have less-direct exposure to international trade, small-company stocks outperformed large-cap issues during the quarter. Additionally, smaller U.S. companies currently tend to be valued more attractively than their larger peers, and their domestic focus leaves them well-positioned to benefit from a lower corporate tax rate.

Though it was impossible to ignore the increasing turmoil in the markets as the quarter progressed, our focus remains on identifying high-quality companies with strong growth prospects. That said, the Fund’s health-care and information-technology sectors were the top-contributing sectors for the quarter, benefiting from both advantageous stock selection and a significant overweight relative to the benchmark, particularly for health care, where the Fund’s weighting is more than double that of the benchmark. Interestingly, while health-care companies expect to benefit from the corporate tax cuts, tech companies don’t expect to achieve much of a benefit, given that they were already paying taxes at a lower-than-average rate. Among the sectors in which the Fund was invested, financials ceded the most ground to the benchmark.

On a country basis, the Fund benefited mainly from its investments in developed countries, including the United Kingdom and France in addition to the strongest contributors mentioned earlier. On the negative side, the largest detractors were India, Brazil and Switzerland. For the past few months, the performance of our investments in India has been mixed, following a particularly strong run in 2017 when India ended the year as the second-best contributor behind the United States. We continue to believe that India’s economy is strong and that the reforms introduced by the Modi government will prove to be positive over the long-term. We also believe that our portfolio companies have strong growth prospects that have the potential to benefit the Fund over the long term.

Details of the Quarter

Medytox, Inc., a Korean manufacturer of injectable neurotoxins for cosmetic applications and the treatment of muscular disorders, was the leading contributor to the Fund’s performance in the first quarter. In the third quarter of 2017, the company’s share price declined when China clamped down on travel to Korea, putting a dent in medical tourism, a key driver for Medytox. Shares of Medytox rose during the quarter following reports that a competitor had encountered regulatory difficulties with the U.S. Food and Drug Administration (FDA). Already a leader in its industry, Medytox is well-positioned in our view for further gains to the extent that stringent enforcement of quality standards weeds out weaker competitors.

Nihon M&A Center, Inc. was the second-best contributor during the quarter. This Japanese company specializes in facilitating the purchase and sale of businesses. The company has been benefiting from a wave of consolidations affecting several industries throughout Japan, including the pharmaceutical industry, where the Fund also has investments. Nihon M&A has been executing well, matching small companies with potential buyers, which are usually larger companies seeking to expand.

HealthEquity, Inc. (HQY) is a U.S.-based company providing an online platform to manage Health Savings Accounts (HSAs), Health Reimbursement Arrangements, Flexible Spending Accounts and similar health-care-related accounts. The company recently reported revenue growth for the last quarter of 2017 of 31% over the same period a year ago. In February, the company’s shares experienced a volatile month—with a strong advance followed by a pair of dips from which the price more than recovered, allowing HealthEquity to end the quarter as the Fund’s third-best contributor. We continue to view the company as well-positioned in the fast-growing HSA market.

Somany Ceramics Ltd. is an Indian company that manufactures ceramic and vitrified tiles used on walls and floors. We believe the company is well-positioned to benefit from the growth of India’s middle class, but Somany Ceramics was the Fund’s largest detractor during the quarter as India’s equity markets gave back some of the gains achieved last year.

Another stock tied to residential construction, this time in the U.S., was also a detractor. Installed Building Products, Inc. (IBP) is a manufacturer of insulation for residential construction. Worries that higher mortgage rates would make houses less affordable for potential buyers weighed on the company’s shares.

EcoRodovias Infraestrutura e Logistica S.A. is the second-largest toll-road operator in Brazil. The road network in Brazil is over-crowded and under-developed as is typical for emerging markets. The toll-road industry in Brazil appears solid, with rational competition, more projects coming up for bid and a recovering economy. In February, EcoRodovias agreed to buy Concessionaria de Rodovias Minas Gerais Goias (MGO), which manages a 271-mile highway in the Brazilian states of Goias and Minas Gerais, pending approval of regulators. The stock was a significant detractor from performance for the quarter.

Exact Sciences Corp. (EXAS), developer of the innovative colon-cancer screening test Cologuard,® was another major detractor. The company’s shares dropped sharply in early January when management announced its intention to offer $500 million in convertible senior notes. The company said it would use the money in part to fund commercialization of its test. Combined with reports that test volumes were flat, investors reacted negatively to the news. (Current and future holdings are subject to risk.)


Five members of our investment team recently returned from a two-week to Japan, where they met with management teams from about 80 different companies. They came away with a lot of new ideas that the team will continue to research for possible eventual inclusion in the Fund. Beyond that, the trip served to confirm our view that the global economic engine is on fire. Although many of the companies they met with conduct business mainly in Japan, China and other Asian countries, more than a few are engaged globally. For those companies principally doing business in Japan, there is ample evidence to support our view that there are attractive opportunities in industries undergoing consolidation, such as retail pharmacies.

Both their discussions with the companies they visited, and our observations of Japan generally, confirmed our view that wage growth, the tight employment market, economic improvement, corporate-governance reforms, and increased reinvestment in businesses are all continuing to add to the health of Japan’s economy.

Given our team’s findings from the recent visit to Japan, we think the country’s fundamentals look very positive. On this trip, our portfolio managers and analysts also found company management teams a little more receptive to foreigners; some companies even presented disclosures in English. In addition, we see a wealth of high-quality companies and believe it’s still possible to find and exploit inefficiencies in the Japanese market.

Canada is the next destination of our research team. Canadian equity markets were off about 10% during the quarter, and for us, that presents an exciting opportunity. Although Canada isn’t likely to take a large role in the Fund, we think there may be a few companies that would be productive additions. Our Canadian trip is planned for May.

Lastly, while the U.S. market’s volatility in February and late March cannot be ignored, our view of the long-term outlook hasn’t changed. Both company and economic fundamentals continue to be positive. While it wouldn’t surprise us if 2018 continues to be a volatile year, we’ll stay focused on pursuing our investment discipline to find companies that we believe have the potential to contribute to the long-term success of the Fund.

Thank you for the opportunity to manage your assets.


JB Taylor and Ajay Krishnan



The MSCI ACWI Small Cap Index is an unmanaged index and includes reinvestment of all dividends of issuers located in countries throughout the world representing developed and emerging markets. This index is a free float-adjusted market capitalization index designed to measure the performance of small capitalization securities. You cannot invest directly in this or any index.

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The Wasatch Global Opportunities Fund’s investment objective is long-term growth of capital.

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 MSCI AC World Small Cap Index is an unmanaged index and includes reinvestment of dividends of issuers located in countries throughout the world representing developed and emerging markets.


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