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

Investor Class | Institutional Class
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The Fund Benefited From Developed-Market Holdings Amidst Volatility in Emerging Markets
by Roger Edgley, CFA, Ken Applegate, CFA, CMT and Linda Lasater, CFA

“We believe the backdrop for international small-cap equities remains constructive. There is turmoil in some emerging-market countries, but we are extremely selective from a country and company perspective and we see market sell-offs as a great time for bargain hunting.”

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Investing in small or micro 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 currency fluctuations and political uncertainties, which are described in more detail in the prospectus.

For the period ended September 30, 2018, the average annual total returns of the Wasatch International Growth Fund for the one-, five- and ten-year periods were 12.13%, 7.23%, and 13.25%, and the returns for the MSCI AC World Ex-U.S.A. Small Cap Index were 1.86%, 6.14%, and 8.73%.  Expense ratio: Gross 1.46%.


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 increased 1.43% in the third quarter of 2018 and outperformed the MSCI ACWI (All Country World Index) ex USA Small Cap Index, which declined -1.51%.

“The more things change the more they stay the same” seems like an appropriate phrase to open this quarterly update. There is no shortage of events around the world that have the potential to impact financial markets. Examples include the announcement of tariffs, financial and political issues plaguing Italy, political uncertainty in countries like Sweden and Australia, and weakening economic indicators in some countries. Experience has taught us that while macro-related events may feature prominently in news headlines, they usually have minimal impact on the long-term underlying value of the high-quality businesses in which we seek to invest. Rather than paying too much attention to the headlines, we seek to identify changes at the company level such as new competitive challenges or deteriorating fundamentals. We also look at broader themes that can specifically affect businesses such as the disruptive nature of technology or the trend toward healthier lifestyles, for example. The constant in our investment process is our unrelenting focus on identifying and thoroughly researching companies that we see as high quality with outstanding potential for long-duration growth.

This focus on the investment potential of individual companies has led us to faraway places like Australia, a country in which the Fund is overweight relative to the benchmark. WiseTech Global Ltd. was one of the Fund’s top contributors for the quarter. The company’s share price has doubled since we first bought shares last year. Headquartered in Sydney, WiseTech provides cloud-based logistics software. The company’s software is an end-to-end logistics solution built on a single source code and database giving it outstanding and seamless functionality and unrivaled data integrity. The SaaS (Software-as-a-Service) model allows customers to quickly implement the software, while WiseTech retains full control over updates, upgrades and functionality. In our opinion, the company has a great business model and an impressive management team. WiseTech operates in a fragmented industry with no real market leaders—providing the company with significant headroom for growth.

Webjet Ltd. was another top contributor from Australia. The company operates the top online travel agency (OTA)—webjet.com—in Australia. Over the last few years, Webjet has been expanding into the business-to-business (B2B) travel segment with WebBeds, which offers wholesale rates on hotel rooms to its clients (OTAs, wholesalers, retail agents and tour operators). Last year, the company purchased JacTravel, helping Webjet to become the second-largest online hotel wholesaler in a large and fragmented market. With less than 2% market share, we believe Webjet still has ample headroom for growth in this market.

Corporate Travel Management Ltd., also from Australia, did well when the company issued another strong earnings report. Corporate Travel has been building a leading enterprise platform in the corporate-travel market, which enables its business customers to do more with less and save money on travel-related needs. The company has been leveraging its platform and investing to expand into Europe and the U.S., and these efforts are beginning to bear fruit.

What these three Australian companies have in common is that they are homegrown success stories replicating their success in other countries around the world. As a nation of only 25 million people, Australia benefits from a wealthy local market while remaining a low priority for global companies. This somewhat benign competitive environment coupled with an entrepreneurial culture enables Australian companies to innovate and develop expertise. The ability of these companies to replicate their domestic-market success in other countries provides them with outstanding growth potential.

During the quarter, we traveled to Germany where we spent a week meeting with 22 companies including all of our German portfolio companies. We have been overweight in Germany for quite some time because we have been finding many companies that meet our high standards for quality. During times of uncertainty, this quality shines through.

XING SE is one of the Fund’s larger holdings that contributed to performance for the quarter. Headquartered in Hamburg, Germany, XING is the leading career-oriented online networking site that offers tools for corporations in DACH countries (Germany, Austria and Switzerland) to recruit employees. XING is a leader in this region over competitors such as LinkedIn due to the company’s local knowledge and specialized customer solutions.

Another German holding, Nemetschek SE, develops software solutions, which allow architects, engineers, construction companies and facility managers to plan ahead and seamlessly share information and work closely together. With Nemetschek products, building and infrastructure projects can be managed more efficiently and sustainably. While we see ample opportunity for this business to continue growing, we reduced our position during the quarter given what we saw as a high valuation and to fund other exciting investment opportunities.

While in Germany, we spent an afternoon with the CEO and other senior executives of Hypoport AG near Munich. We also visited one of the company’s Dr. Klein sites to better understand how financial advisors use Europace, a B2B financial marketplace, and interact with customers. Hypoport is a financial-technology (fin-tech) company that has created a successful B2B mortgage marketplace. The company’s vision is to become a broader online financial-services platform by replicating its success in related industries such as insurance and other real-estate services.

On the other side of the coin, emerging-market stocks were among the quarter’s worst performers. Some countries such as Turkey and Argentina do have issues with their markets and currencies being severely impacted. However, we believe the perception of contagion, which led to the broad selloff in emerging markets, is greater than the reality. Many developing countries are in a better position compared to 2013 when the emerging-market countries deemed to be most at risk from the U.S. Federal Reserve’s planned tapering of asset purchases were dubbed “The Fragile 5.” Today, currencies of developing countries such as India appear to have stabilized and are more competitive. Current-account balances have improved and stock valuations are still below long-term averages. We like the strength we have been seeing as companies have been producing the earnings growth we expect. While we are underweight versus the benchmark in emerging markets, we have been adding to our positions in companies that we feel have been unfairly sold off.

51job, Inc. ADR saw its depositary receipts sell off during the quarter. The company provides online recruitment and other human-resources services in China. 51job reported strong earnings that were in-line with what investors were expecting, but management has been increasing investments to fund new growth initiatives, which resulted in a weaker-than-expected earnings forecast. We believe management is making the right decision to support the company’s long-term growth but, when combined with overall weakness in emerging markets, this led to a decline of -21% in the price of 51job’s depositary receipts. We used the decline as an opportunity to add to the Fund’s position.

U-Blox Holding AG, a Swiss semiconductor and module solutions provider for industrial and automotive end markets, was also a significant detractor from Fund performance for the quarter. Management reported weak sales, citing uncertainty in China and softness in semiconductor end markets. Silergy Corp., a Taiwanese manufacturer of high-performance mixed-signal and analog integrated circuits, was another large detractor. Silergy saw its stock price decline as a global shortage of passive electronic components impacted production of its products. We believe the shortage will be temporary and expect the company to ramp up production when components become more-readily available. We dramatically reduced our exposure to the semiconductor industry earlier in 2018 but held onto smaller positions in both U-Blox and Silergy. While these semiconductor companies are not immune to short-term end-market weakness, we focus on their long-term potential. Our conviction in both companies remains high. (Current and future holdings are subject to risk.)


We believe the backdrop for international small-cap equities remains constructive. There is turmoil in some emerging-market countries, but we are extremely selective from a country and company perspective and we see market selloffs as a great time for bargain hunting.

Our positioning within Europe remains focused on the Nordic countries as well as core European countries such as Germany, France and Switzerland. We are overweight relative to the benchmark in the United Kingdom but, as our shareholders know from previous commentaries, we have deemphasized domestically oriented companies that we feel could be disproportionately affected by uncertainty surrounding ongoing Brexit negotiations. We remain optimistic regarding the prospects of our globally focused U.K. holdings. Although some trouble spots in Europe remain, we see many exciting areas of opportunity such as the innovative information-technology (IT) and related companies we discussed above. Globally, innovation will play an increasingly important role in companies’ ability to be successful, and not just IT companies.

Japan is an inefficient market and we continue to find a plethora of investment opportunities. We have generated strong returns in Japan over the last five years and are equally excited about the next five years. The re-election of Shinzo Abe as prime minister to his third term in office provides us with increased confidence that positive structural changes in Japan will be continued. Abe is on track to become the longest-standing prime minister in modern-day Japan, an area of political calm amidst a global political storm.

We believe one of the Fund’s strengths is its diversity, as we invest broadly across countries and sectors. We focus on what we consider to be high-quality companies with strong business models, leading market-share positions or innovative products or processes. Experienced management teams are at the helm of the companies held by the Fund. We are confident they have the ability to navigate through uncertain times and decide where best to invest the capital we entrust to them.

We thank you for your support as we continue to work hard at the challenging and exciting task of finding great small companies around the world.


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.

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.

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.  

You cannot invest directly in indexes.

View the International Growth Fund’s most current Top 10 Holdings

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CFA® is a trademark owned by CFA Institute.