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Polaris Fund: Opportunities Abound Worldwide

Before the great bull markets of the 1980s and 1990s, long-term investors in global and international stock funds reaped some handsome rewards.

Last year, word on Wall Street was that these world funds would likely score again, And now, many have.

Twelve different fund types fall under Lipper's World Equity Fund heading. Fund categories include everything from gold funds to global, international, and regional funds. The year-to-date performance of entire group, through August 14, was a positive 15.9 percent----just a hair shy of the performance for the average U.S. diversified equity fund (15.98 percent).

One global fund outpacing the averages is the Polaris Global Value Fund (888-263-5594). Managed by Bernard Horn, also the president of Polaris Capital Management, the fund's investment strategy blends model-driven quantitative analysis with good old-fashioned bottom-up stock picking. So far, that combo has paid off as year-to-date (Aug. 15) the fund's total return was a positive 25.66 percent. Last year, when the average global fund was down 19.45 percent, this one was up 3.8 percent.

The Polaris Global Value Fund (PGVFX) is a well-diversified, multi-cap fund that currently has about 70 stocks in its portfolio. "We have at least 15 different industries and 15 different countries (represented) in the portfolio at any given time," says Horn.

Here's more about the fund from Horn:

Q: Would you explain more about your investment strategy?

A: We take a lot of investment technology and use that to leverage up our time so that we can spend as much time as possible doing fundamental research.

I use the term "investment technology" to mean that there are some quant (quantitative) concepts in what we do. The first step of the process is a global valuation model---it ranks countries from the most undervalued to the most overvalued. The second step is a screen on stocks and the two steps run parallel with one another.

Q: Global funds, unlike international funds, can invest their assets all around the world including the United States. Are there many U.S. stocks in the fund?

A: If you look at the first step of our model, the U.S. is near the bottom of the ranking because it still appears to be quite overvalued. So we have been shifting the mix in the portfolio a little bit away from the U.S. market.

That's mostly a statement about the large-cap stocks. There are some really good less-than-large-caps that we like a lot and have invested in. But to give you one benchmark, the price-to-cash earnings figure, in the U.S. it's about 12 times (earnings). Everywhere else in the world, it is about 8 (times earnings).

So you could say that the U.S. market is almost 50 percent overvalued, or, 50 percent higher valued than the rest of the world. ( Horn explains the price-to-cash earnings figure as net profit with things like depreciation, amortization and some reserves added back.)

Q: What are a couple of stocks that have worked well for you?

A: One of them is Continental, it's a German tire company. Here's a company that you wouldn't expect to be doing well, because it's based in Germany. But I've owned the stock for over five years and it's only recently started to take hold because it has taken them that long to shift production from high (production) cost countries to low (production) cost countries. They have shifted a lot of their production over to Romania and other countries where the costs are one-fifth of what they are in Germany. So that's a case of where we understand the high-cost countries are losing jobs and low-cost countries are gaining them.

You may recognize the tire brand but they also make electronic stabilization systems. The electronic stabilization system on the new Volvo SUV is a Continental system. They also make anti-lock brakes and a bunch of other car parts.

Another stock that we've had quite a bit of success in is Barratt Development. It's one of about five different British home builders stocks that we own and have doubled our money in over the last five years.

One that we bought in the last couple of years that hasn't done well is Peugeot. It's actually a great value and one of two or three car companies in the world that's actually making money and throwing off free cash flow. Lately the stock hasn't done well because the car market in Europe is a little bit soft and Peugeot has lost some market share. But, they've got a great car line and a lot of new models coming so we think that over the next three to five years it's going to do well.

To learn more about the Polaris Global Value Fund, visit their web site: www.polarisfund.com


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.

To read more articles, please visit the column archive.

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