Northern Multi-Manager International Equity (NIEWX), November 2006, July 2010

By Editor

. . . from the archives at FundAlarm

These profiles have not been updated. The information is only accurate as of the original date of publication.

November 1, 2006
Update (posted July 1, 2010)

FundAlarm Annex – Fund Report

Objective

The fund seeks long-term capital appreciation through a diversified portfolio of non-U.S. securities. Income is “incidental.” It’s willing to invest in companies of any size, though primarily in the developed markets. The portfolio is allocated among four independent, outside managers.

Adviser

Northern Trust. The parent company was founded in 1889 and has about $650 billion in assets under management. Northern Trust Global Advisors (NGTA) has been managing money for institutional investors for about a quarter century.

Manager

Andrew Smith, Senior Vice President and Chief Investment Officer for NTGA since 2000. Before that, he managed about a billion dollars in asset allocation funds for Spectrum Investments. Smith’s task here is primarily to select and monitor the fund’s sub-advisers. The four current sub-advisers are:

  • Altrinsic Global Advisors – A Connecticut-based firm with about $3 billion under management. They focus on large, high quality companies. Northern describes them as having a “relative value style: expected to protect capital in negative markets.”
  • Nicholas-Applegate Capital Management – A California-based adviser with about $15 billion under management. These folks provide an aggressive-growth element to the portfolio.
  • Oechsle International Advisors – A Boston firm which oversees about $18 billion. This is a fairly GARP-y, conservative growth group. Oechsle was subject to a disciplinary action by the SEC in 1998 for failing to adequately supervise one of its private portfolio managers, who has since left the firm. Oechsle subsequently reimbursed its clients for the monetary losses they suffered.
  • Tradewinds NWQ Global Investors – This is a wholly-owned subsidiary of Nuveen Investments with about $23 billion under management. These folks pursue an “absolute value” style which is “distinguished by deep specialization, fundamental analysis and transparency.” In theory they’ll provide the best down-side protection for the portfolio.

Inception

June 22, 2006.

Minimum investment

$2,500 for regular accounts, $500 for IRAs and $250 with an automatic investment plan.

Expense ratio

1.45% after waivers, although only 1.59% even without the waivers. There’s also a 30-day, 2% redemption fee to discourage active traders.

Comments

The argument for Northern’s various multi-manager funds is pretty straightforward. Northern has been selecting investment managers for really rich people for 125 years. They’ve done it well enough that Northern has been entrusted with assets that are starting to creep up on the trillion dollar mark. They sorted through a set of 500 managers before selecting these four.

And, in general, they seem to be getting it right. Collectively Morningstar awards four-stars to Northern’s international fund line-up and praises their “very low” expense ratios. Nicholas-Applegate runs a bunch of pretty solid international funds, but their investment minimums are typically around a quarter million dollars. Tradewinds has only a few funds, but they’re solid, disciplined performers. Altrinsic and Oechsle’s public records are mostly with funds for sale to Canadian investors. In the US, they seem to serve mostly high net-worth individuals.

Northern positions this as a fairly aggressive choice. On their risk-reward spectrum, it occupies the fourth spot from the top behind the emerging markets, international real estate and international growth funds and next to their international index fund.

Bottom line

This fund is a calculated risk, in some ways more than most. You’re basically betting on Northern’s ability to assemble a group of superior investors whose services are not generally available. Mr. Smith has been doing this for better than 20 years and seems to be rising steadily within his profession. And Northern has been doing it, to the apparent satisfaction of “a well-heeled client” for better than a century. This seems to create a fair presumption in their favor, especially at a time when compelling choices in international funds are few.

Company link

http://www.northernfunds.com

November 1, 2006

Update (posted July 1, 2010)

Assets: $2.7 billion Expenses: 1.4%
YTD return (through 6/17/10): (4.0%)  

Our original thesis

This fund is a calculated risk, in some ways more than most. You’re basically betting on Northern’s ability to assemble a group of superior investors whose services are not generally available.

Our revised thesis

So far, so good.

Since inception, NMIEX has performed modestly better than its peers or its index. The fund is down about 6% since inception, its international core peer group is down about 7% and its primary benchmark is down about 9%. It has earned those modestly above-average returns with modestly below-average volatility. It substantially outperformed its peers and benchmark during the 2007-09 crash, slightly outperformed them in the May 2010 mini-crash and substantially trailed (47% for NMIEX versus 61% for its benchmark index) through during the 12 month surge following the market low. Both the better performance in the down market and the poorer performance, especially in the early phases of the rebound, are attributable to the same factor: the fund had only about half of the exposure to European financial stocks as did its peers.

In general, the seven Northern Multi-Manager funds have been entirely respectable performers over the short life spans. Like Price funds, they generally seem to do a bit better than the peers over time and rarely end a year in the basement. Northern has been pretty vigilant about monitoring the performance of its sub-advisors and has not been reluctant to replace teams that are drifting (mostly notably in the underperforming Small Cap NMMSX fund, where they’ve made three switches in about 12 months).

It’s regrettable that the fund’s expense ratio has remained virtually unchanged, despite the tripling of assets under management from 2007 through 2010. The 1.4% fee here compares to 1.1% for the average international fund, and rather less than that for the average large cap, developed market international fund.

This is a solid choice whose low minimum investment (down to $250 for folks setting up an automatic investment plan) and broad diversification might recommend it to a wide audience.

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