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

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Earnings Growth for U.S. Companies Generally Has Been Even Stronger Than Stock-Price Increases

“Although U.S. stock prices have increased robustly, valuations—when comparing stock prices to earnings per share—appear somewhat more reasonable than one might expect.”

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For the period ended September 30, 2018, the average annual total returns of the Wasatch Global Opportunities Fund  for the one-, five-year and since inception periods were 20.75%, 9.85%, and 17.49%, and the returns for the MSCI AC World Small Cap Index were 8.67%, 8.86%, and 14.93%. 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.


The Wasatch Global Opportunities Fund—Investor Class gained 3.54% for the third quarter of 2018, outperforming the benchmark MSCI ACWI (All Country World Index) Small Cap Index, which rose 1.36%.

The U.S. was by far the most consequential to the Fund’s performance on an absolute basis and to the Fund’s performance relative to the benchmark during the third quarter. Gains and losses in other countries mostly canceled each other out.

Although U.S. stock prices have increased robustly, valuations—when comparing stock prices to earnings per share—appear somewhat more reasonable than one might expect. That’s because earnings growth rates have generally been even stronger than stock-price increases. As a whole, the U.S. market is now at or near record highs. While large technology firms have been responsible for much of these gains, investors have also favored smaller companies. And among the small-cap companies we focus on, we continue to see strong fundamentals.

On a sector basis—in addition to information-technology names—our consumer-discretionary holdings, especially U.S. retailers, contributed strongly to the Fund’s outperformance of the benchmark during the quarter. Continuing overall economic strength in the U.S. and a surge in consumer spending have benefited both online sellers and traditional brick-and-mortar retail companies. While our investment reasons for the retail names in the Fund are specific to each company’s growth prospects, the supportive macroenvironment has created a welcome tailwind.

In other sectors, our holdings in health care and industrials added to the Fund’s return and contributed to outperformance of the benchmark. The financials sector subtracted a small amount from the Fund’s return and detracted from relative performance. Overall, the Fund’s sector weights—which resulted from bottom-up stock selection and were not due to specific allocation targets—contributed to relative performance during the quarter.

Though we’re always watchful for deterioration in fundamentals, we don’t see any broad-based challenges to the strong growth prospects we believe are represented in the Fund. In certain industries, such as autos and homebuilding, market action seems to suggest a tug-of-war between continuing economic optimism on the one hand and concern that we’ve reached “peak earnings” on the other hand. But broadly speaking, we see little standing in the way of further growth in the U.S. economy.

Details of the Quarter

U.S. companies dominated the contributors to the Fund’s performance during the third quarter, accounting for eight of the Fund’s top 10.

Two of the Fund’s U.S. retailers were among the top contributors to performance for the quarter. Strong sales growth in a robust consumer-spending environment played a role in driving the stocks of both companies higher. But we also believe investors have gained greater appreciation of the companies’ business models, which insulate them to some extent from the “Amazon effect” that’s been disrupting the businesses of many traditional brick-and-mortar retailers. Each company posted strong quarterly numbers and anticipates doubling or even tripling its existing store count. In both cases, we’re highly optimistic about their prospects for achieving that growth vision.

Ollie’s Bargain Outlet Holdings, Inc. (OLLI) is an extreme-value retailer that acquires excess inventory of brand-name products in a wide variety of categories, then offers those products to customers who enjoy the bargain-priced, “treasure hunt” shopping experience. We believe Ollie’s business model would be hard for online competitors to replicate, and its loyal customer base is a competitive advantage for the company. This competitive advantage is continually strengthened through its “Ollie’s Army” membership and rewards program. Going forward, we see the potential for Ollie’s to double the number of its stores to more than 500 in the coming years.

Five Below, Inc. (FIVE), meanwhile, has established itself among teens and young consumers as the destination store for inexpensive, fun merchandise. Low prices for the company’s products—everything in the store sells for $5 or less—make it difficult for e-commerce companies to offer such products with the free-shipping benefit that online customers have come to expect. Moreover, Five Below has so far self-funded its store expansions through organic growth, and we expect it to continue to do so.

Trex Co., Inc. (TREX), a U.S. industrial firm, also contributed strongly this quarter. Trex has established leadership in composite decking, railing and other high-performance, low-maintenance outdoor-living products. Trex reported exceptionally strong quarterly figures for sales and earnings that far exceeded Wall Street estimates, and its share price leapt higher on the last day of July and traded at or above that level through the end of the quarter. We remain impressed by Trex’s management team and expect to see further growth as the firm takes market share from traditional suppliers of wood products.

Another leading contributor for the quarter was HealthEquity, Inc. (HQY), a U.S.-based health-care company that provides an online platform to manage health-related accounts such as Health Savings Accounts (HSAs), Health Reimbursement Arrangements and Flexible Spending Accounts. HealthEquity’s stock price experienced some volatility earlier this year as investors grew wary about growth potential in the company’s market. But we continue to like the company’s prospects in what we still view as a fast-growing HSA market.

The two main detractors from performance for the quarter were emerging-market holdings MakeMyTrip Ltd. (India) and Medytox, Inc. (Korea). MakeMyTrip operates the leading online travel agency in India. The company’s stock price declined in August after management reported mixed quarterly results. The stock fell further on concerns of increased competitive intensity in the airline-ticketing and hotel-booking segments. We think these fears are overdone. In our view, MakeMyTrip’s strong market position and the financial backing of South Africa-based Naspers Ltd. make the company an unlikely target for competitors seeking to gain market share.

Medytox’s stock price may have slipped as part of broad-based volatility in several emerging-market economies. We remain confident in the company’s business model and growth prospects.

Another detractor was U.S. regional bank Eagle Bancorp, Inc. (EGBN), which saw its stock price slide on concerns that, as interest rates rise, Eagle may not be able to maintain what has been a highly attractive differential between what it pays depositors and its income from lending. We think investors have overreacted because Eagle’s earnings yield also rises as rates increase due to variable-rate loans.

China Biologic Products Holdings, Inc., a U.S.-listed Chinese health-care company, also detracted from performance for the quarter. The stock fell on news that the company might be taken private. We continue to see China Biologic’s fundamentals as sound, and we await its decision as to whether it will remain a publicly traded company. (Current and future holdings are subject to risk.)


As we’ve spoken with corporate management teams in the U.S., we’ve heard again and again that they’re seeking ways to grow their businesses and make their companies operate more efficiently. Both of these endeavors are aimed at helping their companies benefit even more from an expanding economy. We believe one reason the information-technology sector has continued to thrive is that by investing in technology, executives can address their desire to achieve both growth and efficiency. Technology can facilitate growth by creating ways to reach more customers in more ways. Technology can improve efficiency through initiatives such as shifting applications to the cloud and, in a tight labor market, finding more ways to automate processes.

We, therefore, remain positive on the Fund’s information-technology holdings despite their relatively lofty valuations. The momentum of corporate investment could carry tech names even higher—especially given tax reform, which has freed up cash for many profit-making companies. As always, our focus is at the individual-company level. In reviewing the Fund’s software and other technology holdings, we continually evaluate their competitive advantages, making sure our expectations for accelerating revenues and profits are still reasonable.

There are, of course, valid concerns about the U.S. economy, including a flattening yield curve and potential impacts from international trade tensions. However, we don’t see these or other macro factors as likely to usher in a recession in the coming months. That leaves the question, then, of whether conditions are already “as good as they can get”—a concern that’s held down stock prices in some industries such as trucking, even though companies have been reporting record earnings. From our perspective, both in analyzing company fundamentals and in talking with management teams, we see the potential for further gains.

Beyond the U.S., the country of greatest note to us at present is Japan. Our view on Japan has become increasingly positive as structural reforms have taken hold. We believe the re-election of Prime Minister Shinzo Abe for an unprecedented third term in office could usher in another wave of reforms. The positive macro-level backdrop in Japan complements what we see as high levels of innovation and strong fundamentals among the Fund’s Japanese holdings. We’ve been watching a number of Japanese companies that are compelling based on our metrics. And we’ve been finding opportunities to add to our holdings in Japan when stock prices pull back.

In September, the Wasatch international team took a research trip to Germany with a primary focus on meeting with the management teams of current Fund holdings and a secondary focus on adding to our watch list of prospective investments. Germany’s economic recovery remains strong despite a slight pullback in some measures of business conditions. For the eurozone overall, we think many investors may have erred too much on the side of caution in their estimation of Europe’s prospects.

Among emerging markets, pockets of concern are now flaring up with greater intensity. There’s no question that investors are generally more comfortable with what they perceive as the safer—and still fast-growing—U.S. stock market. But we continue to see solid growth opportunities in emerging markets and remain optimistic about prospects for the Fund’s emerging-market holdings.

Finally, given continuing international trade tensions, we’d like to echo something we wrote previously. The short-term impacts of tariffs are hard to predict. Over the long term, it’s hard to deny the benefits of globalization. Whether it takes three months or three years, trade issues are likely to be resolved. In the meantime, small-cap companies—with their greater focus on domestic markets—may provide some insulation from trade-war fallout.

Thank you for the opportunity to manage your assets.


JB Taylor and Ajay Krishnan



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CFA® is a trademark owned by CFA Institute.

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

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.

Earnings per share or EPS is the portion of a company’s profit allocated to each outstanding share of common stock. EPS growth rates help investors identify companies that are increasing or decreasing in profitability.

Earnings yield refers to a company’s earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company.

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 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.


You cannot invest directly in indexes.

View the Global Opportunities 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.

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CFA® is a trademark owned by CFA Institute.