Wasatch International Growth Fund® (WAIGX)  Invest in this Fund 

Investor Class | Institutional Class
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Global Stock Markets Retreated in the Fourth Quarter
by Ken Applegate, CFA, CMT, Roger Edgley, CFA and Linda Lasater, CFA

“We have been seeking to take advantage of the many great buying opportunities that have resulted from indiscriminate selling pressure across global markets.”

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For the period ended December 31, 2018, the average annual total returns of the Wasatch International Growth Fund for the one-, five- and ten-year periods were -15.71%, 1.46%, and 13.37%, and the returns for the MSCI AC World Ex-U.S.A. Small Cap Index were -18.20%, 1.96%, and 10.02%.  Expense ratio: Gross 1.45%.


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 International Growth Fund—Investor Class was down -21.46% for the quarter ended December 31, 2018, while the benchmark MSCI ACWI (All Country World Index) ex USA Small Cap Index declined -14.43%. For the year, the Fund fell -15.71% versus the benchmark’s loss of -18.20%.

There was no shortage of news throughout the year to dampen the enthusiasm in the markets. Examples included tension among some global trading partners, the financial and political issues plaguing Italy, political uncertainty in countries like Sweden and Australia, rising interest rates as central bankers in parts of the world began normalizing monetary policy, and weakening economic indicators in some countries, particularly China. Global growth remains positive but has become less broad based. We expect further volatility in the markets and tempered company outlooks as we enter 2019.

While macro-related events and economic cycles can impact companies in the short term, our view is that the underlying value of the Fund’s holdings will persist over the longer term because they are high-quality companies as evidenced by their enduring competitive advantages, outstanding business models and management teams, and strong balance sheets and cash flows. Such companies have the ability to adapt quickly, continue to invest in their businesses, and take advantage of uncertainty and disruption to grow from cycle to cycle. In uncertain times such as we experienced in 2018, we believe quality is key and we are confident that our portfolio of high-quality, long-duration growth companies has the potential to be able to navigate turbulent markets and emerge stronger.


The fourth quarter, particularly the month of October, saw an abrupt reversal in developed equity market trends, resulting in the Fund underperforming its benchmark for the quarter. Japan and the United Kingdom weighed heavily on performance both in absolute terms and relative to the benchmark. These two countries also subtracted the most from the Fund’s return for the year, but for the 12-month time frame, our Japanese and U.K. stocks held up better than their benchmark counterparts. Our emerging-market names held up better than their developed-market counterparts in the fourth quarter, given their better relative value coming into the quarter after seeing weaker performance earlier in the year.

In the quarter, India was one of the few countries to produce a positive return, so the Fund’s overweight position was a tailwind to performance versus the benchmark. In addition, three of the Fund’s top contributors to performance were Indian companies. Berger Paints India Ltd., the second-largest decorative paint company in India, was a top contributor. In the quarter, the company announced it would be hiking prices to fully protect margins, which was viewed positively by investors. The other two top contributors from India were AU Small Finance Bank Ltd. and ICICI Lombard General Insurance Co. Ltd. AU Small Finance Bank is focused on secured lending to small and micro businesses in Northwest India. The company continued to see strong trends similar to the prior quarter. Management also said that the bank’s net interest margins should be sustainable and could even see improvement from current levels. ICICI Lombard is a leading private-sector general insurance company. During the quarter, the company reported healthy business momentum and is expected to benefit from higher rates supporting investment yields and regulatory tailwinds.

Vitasoy International Holdings Ltd., one of our long-term and largest holdings, was the Fund’s top contributor for the quarter and for the year. Vitasoy produces and sells soy milk, teas, and tofu products in China, Hong Kong, Southeast Asia and Australia. The company reported another strong quarter with sales in mainland China driving growth and margin expansion.

MonotaRO Co. Ltd., an online distributor of maintenance, repair and operations supplies in Japan, was a strong contributor in the year. The company’s initiatives to procure large accounts continued to progress strongly. MonotaRO’s investment in a highly automated distribution center is expected to improve productivity, which we believe will allow the company to further strengthen its competitive position and secure new customers.

Another top contributor for the year, TGS NOPEC Geophysical Co. ASA of Norway saw strong earnings trends in the first half of 2018 with increased investment from oil and gas companies, which drove significant stock-price performance. Given the cyclical nature of the oil and gas equipment and services industry and TGS NOPEC’s rich valuation, we significantly cut our position size coming into the second half of the year. This proved to be a good move given the -40% selloff in the company’s shares during the fourth quarter.

In the U.K., Brexit weighed heavily on consumer sentiment and created uncertainty among businesses. Fevertree Drinks plc, Metro Bank plc and ASOS plc were detractors during the quarter and for the year. Fevertree provides premium mixers in the U.K. The company reported strong financial results for its most-recent quarter, but with a high valuation and increased market volatility, the stock was weak. We took this opportunity to round up in what we consider one of the market leaders in this category. Metro Bank is a retail bank in the U.K. The residential mortgage market was fiercely competitive in the quarter. Management has been staying disciplined and not stretching out on the risk curve in search of yield. The company continues to disrupt the high street banking industry and win new customers with its customer-first; employee-empowered strategy and culture. ASOS is a global online retailer of fashion apparel. The company issued a warning in the quarter as Black Friday sales disappointed. Management cited unprecedented discount activity around the globe, which they decided not to match. ASOS is a leader in the online retail category, which continues to take share from traditional brick-and-mortar stores. We believe the company’s investments in the supply chain, attracting new customers and branding position ASOS well for the future.

In Japan, the Fund’s fourth quarter detractors included M3, Inc., UT Group Co. Ltd. and Nihon M&A Center, Inc. M3 provides medical-related services online in Japan. The company is a leader in delivering drug information to doctors. M3 has continued to invest in its business to drive future growth, which has been putting short-term pressure on the company’s profit margins. We are confident that these investments will pay off given the company’s strong track record in leveraging existing assets to move into adjacent areas and drive growth. UT Group provides dispatch-worker services for the manufacturing and engineering fields. In the quarter, management reported weak profit margins due to fewer working days as a result of more holidays and a natural disaster. We believe there are no fundamental issues with our investment in UT Group and are using the opportunity to round up in the name. We also added to our position in Nihon M&A, the leading merger and acquisitions services provider to small businesses in Japan. The company has seen a slowdown in deal flow in recent quarters, which led to a selloff in its shares. We believe that the demographic trend of Japan’s aging population is a strong secular driver for Nihon M&A and the slowdown in deal flow is temporary. We believe the company is well-positioned to help retiring business owners sell their firms. Nihon M&A continues to hire and invest, which we believe bodes well for future earnings growth. (Current and future holdings are subject to risk.)


Global growth appears to have peaked but seems likely to continue expanding at a moderate pace. However, rising global barriers to trade, normalization of central-bank monetary policy and rising interest rates could affect that growth. In addition to investors digesting this economic transition, there was also a significant increase in outflows from foreign equity funds, which we believe contributed to indiscriminate selling pressure across global markets. We have been seeking to take advantage of the many great buying opportunities that have resulted.

In the United Kingdom, ongoing Brexit negotiations continue to create uncertainty, though we remain optimistic regarding the prospects of our U.K. holdings. Our holdings tend to be more globally focused and therefore less dependent on the U.K.’s domestic economy. We are monitoring the fundamentals of U.K. companies that we consider high quality. While the state of political affairs in the U.K. remains uncertain, we believe that markets tend to overshoot both on the positive and the negative side and we are starting to see compelling opportunities. Our first overseas research trip in 2019 is to the U.K.

Trends in Continental Europe continue to weaken. Our holdings are positioned across the Nordic countries (Denmark, Norway and Sweden) and the core continental European countries including Germany, France and Switzerland. Current headwinds in Europe appear external, particularly in the countries in which the Fund has holdings, and domestic trends remain relatively stable. Valuations relative to other developed regions are becoming more compelling.

We continue to be excited about our opportunity set in Japan. Japan’s micro- and small-cap market is one of the most dynamic and vibrant in the world, while also being one of the most inefficient. Political stability, solid corporate fundamentals and valuations provide support for the investment environment in the short term to mid term. In the long term, new-generation companies and management teams, corporate reform and improved corporate governance drive our optimism for investing in Japan.

We remain confident in the ability of our companies across the globe to navigate turbulent environments by virtue of their experienced management teams, solid business models and strong competitive positions. These companies are also characterized by their strong balance sheets and cash flows, which allow them to invest throughout business cycles and take market share from competitors. We remain optimistic regarding their long-term prospects given recent meetings and calls with management teams, which point to continued investment in their businesses.

Thank you for the opportunity to manage your assets.


Roger Edgley, Ken Applegate and Linda Lasater



**The MSCI ACWI ex USA 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, excluding securities of U.S. issuers. This index is a free float-adjusted market capitalization index designed to measure the performance of small capitalization securities.

The MSCI World ex USA Small Cap Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed markets, excluding the United States.

You cannot invest in these or any indexes.

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)

CFA® is a trademark owned by CFA Institute.

The Wasatch International Growth Fund’s investment objective is long-term growth of capital.

Brexit is an abbreviation for “British exit,” which refers to the June 23, 2016 referendum whereby British citizens voted to exit the European Union. The referendum roiled global markets, including currencies, causing the British pound to fall to its lowest level in decades.

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

Net interest margin is typically used for a bank or an investment firm that invests depositors’ money, allowing for an interest margin between what is paid to the bank’s client and what is made from the borrower of the funds. A positive net interest margin indicates that an entity has invested its funds efficiently, while a negative net interest margin implies that the funds have not been invested efficiently.

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

The MSCI World Ex U.S.A. Small Cap Index is an unmanaged index that measures the performance of stocks with market capitalizations between U.S. $200 million and $1.5 billion across 22 developed markets, excluding the United States.   The MSCI AC World Ex U.S.A. 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, excluding securities of U.S. issuers. This index is a free float-adjusted market capitalization index designed to measure the performance of small capitalization securities.  

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