Harbor International reaps big returns with right picks

Mutual funds


NEW YORK -- Harbor International Growth Fund has made a killing for its investors by not shying away from big bets.

The $275 million fund invests in no more than 30 companies around the world, meaning each stake makes up 3 percent to 5 percent of assets. This strategy has helped drive the fund up 48 percent since its inception in November 1993, according to Lipper Analytical Services Inc., making it the best-performing international fund in that period.

That return is more than three times that of the Morgan Stanley EAFE/Emerging Markets Index, the benchmark for international money managers.

"We think we can bring expertise to bear following a small number of companies," said Blair Boyer, who co-manages the fund with Howard Moss. "We wanted to be dependent on individual stocks, not on an index," he said.

The two managers focus on growth companies, like pharmaceuticals and financial services, and avoid cyclicals like steel and automobile companies. They also refuse to buy a stock unless the company's expected earnings growth rate is more than its price-earnings ratio.

Mr. Boyer and Mr. Moss both work for Jennison Associates Capital Corp. in New York, which manages the fund for Harbor Capital Advisors, a mutual fund group based in Toledo, Ohio.

The two men have been managing money together since 1980, when they worked for New York-based Arnhold & S. Bleichroeder, a New York money manager known for its expertise in international investing.

Their approach is unusual by the standards of most international money managers. International funds frequently own more than 100 different companies as a way of spreading risk, said Andy Lohmeier, analyst at Morningstar Inc. in Chicago. That strategy, however, can also limit returns.

International managers are also often top-down investors, meaning they first choose the countries where they'd like to invest, then buy the large-cap stocks there. Mr. Boyer and Mr. Moss are stock pickers.

Because they focus on companies, rather than countries, the fund has a geographic distribution that might seem nonsensical at first glance.

The fund has a number of French holdings, for example, even though France's economic growth is feeble and unemployment is expected to reach 12 percent by the end of June.

The two have found a number of Gallic stocks that fit their criteria, however, including electrical equipment maker Legrand SA, retailers Carrefour SA and Castorama Dubois Investissements SA and Christian Dior SA.

Christian Dior is actually a play on the perfume, luggage and drinks giant LVMH Moet Hennessy Louis Vuitton SA, since the fashion company owns a 41 percent stake in LVMH. Owning Christian Dior, said Mr. Boyer, is a way to profit from the earnings potential of LVMH at a 33 percent discount.

Aside from Dior, other top five holdings are Swiss drugmaker Ciba-Geigy AG, Hong Kong property development and investment company Cheung Kong (Holdings) Ltd., Hong Kong-based Sun Hung Kai Properties Ltd. and Kimberly-Clark de Mexico SA.

Ciba-Geigy AG is a stock that Mr. Boyer and Mr. Moss have owned on and off for several years, but they bought it most recently about a year ago because "we thought there was new potential on the new products and thought management was more attentive to controlling costs."

At the time they bought the stock, they estimated earnings growth would be between 10 percent and 13 percent for the next two years, while the stock was selling at 10 times prospective earnings.

That bet has been particularly rewarding this year, since the shares climbed 42 percent after the Ciba announced a merger with another Swiss drugmaker Sandoz AG -- a move Mr. Boyer hadn't anticipated.

"It's rare we are involved in a corporate takeover because we own so few stocks," he said.

Mr. Boyer and Mr. Moss have a strong selling as well as a buying discipline. They unload a stock when it hits a fair value based on its P/E in relation to its own history, its competitors and against other holdings in the portfolio.

Pub Date: 4/14/96

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