Johnson Intl. Value

Going international the quant and value way

Anyone who's ever dusted a coffee table or cleaned a window has heard of Pledge and Windex. They're products of the privately held SC Johnson family empire, which, among other things, owns the JohnsonFamily International Fund (800-276-8272).

"Sam Johnson, the family patriarch, runs a global consumer products business. He thinks globally, he acts globally and he sat down with me in 1996 and said we should be doing an international fund, " explains Wendell Perkins, portfolio manager of the fund who said that took about two and a half years to construct the portfolio before it was launched in April,1998.

The fund is both a quantitative and value fund; it's small in that there are only about $45 billion in assets under management; and, that there's a whopping 210 stocks in its portfolio. That's a number big enough to offer broad diversification but as in all broadly diversified funds, can put a drag on performance. Having said that, year-to-date through June 27, the fund was up 3.85 percent. That's well above the performance of the average international fund which, through June 20 was down 4.3 percent. according to Lipper.

Here's more about the JohnsonFamily International Fund (JFIEX), from Perkins:

Q: In a nutshell, tell me about genesis of this fund.

Perkins: We wanted to run a very conservative international fund that was to be value focused; focus on the mid- to large-cap part of the market; and be quantitatively driven.

Q: Why does the fund hold so many stocks in its portfolio?

Perkins: Well, 210 isn't too many for a quant fund. But in this case, the reason for so many holdings is because of the portfolio's composition. We've split the world into six different regions: Europe, United Kingdom; Japan, Asia Pacific, North American--being Canada and Mexico; and the emerging markets. Then, have unique models for each region. So, each region on it's own could be a stand-alone portfolio.

Q: How do you select the stocks for each region?

Perkins: Within each region we then have models for each sector. For instance, the way we value a Japanese health care company is different than the way that we value a European health care company because what drives the market place between the two regions is different.

Q: Will you always have a value bent in this fund?

Perkins. Absolutely. We fundamentally believe that the value markets are, long-term, the most appropriate place to invest; that the growth market is too volatile; and in the end, growth markets are generally susceptible to fads and downturns. So we're far more comfortable in the value market.

Q: And why the quantitative approach?

Perkins: How do you take 20,000 securities globally and decide which 200 to own? It's just more practical. Plus, most value managers are more comfortable quantitatively because what they're ultimately looking for is valuation. They don't really care about the industry, the sector story, the company hype, or the street hype. They really care just simply about valuations, accounting issues, why the stock is undervalued, and what might make it more fully valued.

Q: What's the fund's benchmark and how are the six regions weighted to it?

Perkins: We use the MSCI World X US. To our benchmark, we are currently overweighted in Japan, and the rational for that primarily is that the Japanese market overall remains exceptionally cheap. We think that the market there has more than priced in all of the problems that the Japanese economy faces at this point in time. So we're about 500 basis points overweighted in Japan.

In Europe, we're basically neutral to our benchmark. In the United Kingdom we are underweighted. Asia Pacific we're over weighted by about 400 basis points. Included in that region are Australia, New Zealand, Hong Kong, Singapore. In North America we are neutral. And, we are underweighted in the emerging markets which we've been wrong about, actually, but going back to the theme of risk reduction, we believe that with all the unrest in the world, investments in the emerging market place---while they may long-term pay off---we're just not sure we need in order to perform well. So, we're kind of sitting that one out.

#

Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.