On October 1, 2019, Virtus launched Virtus KAR International Small-Mid Cap Fund (VKIAX). The fund is managed by the KAR of the title: Kayne, Anderson Rudnick Investment Management, Virtus’s largest wholly-owned subsidiary. KAR, based in Los Angeles, manages rather more than $17 billion in assets. Across all of their portfolios, KAR emphasizes two core attributes:
And, on whole, manages them quite well. In 2018, four of KAR’s investment strategies were designated as “Top Gun Manager of the Decade” performers by PSN, a part of Informa Investment Solutions who you might know through their TrimTabs services. Their TGM award highlights strategies with the highest returns and lowest volatility. The strategies recognized all fall in the small-to-mid cap range: Small Cap Core, Small Cap Sustainable Growth, Small-Mid Cap Quality Value, and Mid Cap Core.
The team responsible for the new International Small-Mid Cap Fund has a fair to middlin’ record with the other two funds that they manage together:
While VISAX has drawn $1.7 billion in assets, the younger VAESX has just over $120 million under management. As of late November, the new strategy passed the $100,000 mark. I suspect it’s got room to grow.
The new fund seeks to generate attractive risk-adjusted long-term returns by investing in the stocks of international small- and mid-cap companies with durable competitive advantages, excellent management, lower financial risk, and strong growth trajectories. They are drawn, de facto, to low volatility businesses which tends to translate to lower volatility stocks. Small- to mid-caps range in size from $0 to $27.6 billion in market cap; funds such as this often invest in stocks formerly held in their pure small-cap funds, but which are growing too large to remain there. In consequence, the research burden for investigating them is mitigated. While they take care to assure geographic diversification, the portfolio will be pretty compact. Christopher Franz, the Morningstar analyst currently covering the older International Small Cap fund, argues that the strategy is sensible and sustainable:
Thrasher and crew seek cash-generative companies with low debt levels and strong competitive barriers, such as brand franchises or high customer-switching costs. They look for international small-cap companies with little sell-side analyst coverage, typically below $5 billion in market capitalization, and invest with conviction, paying little heed to sector or geographic weightings. The resulting 50-stock portfolio looks little like its MSCI ACWI ex USA Small Cap benchmark or foreign small/mid-blend Morningstar Category peer. (Feb. 2019)
The fund is co-managed by Craig Thrasher and Hyung Kim. Mr. Trasher joined KAR in 2008 and led the creation of the international small-cap strategies; he’s been manager since inception of the three international funds. Prior to that, he was an equity analyst at Kirr, Marbach & Company. Somewhere in there, he worked out time to spend six years as an anti-tank assaultman in the Marine Corps Reserve. (It’s a sign of the times that we’re forever “anti” something. Where are the pro-tank assaultmen, I ask you?) Mr. Kim joined in 2017 after time in banking and at Advisory Research. He spent his teen years in Germany and earned a BA in German from Hankuk University and an MBA from the University of Chicago. They’re supported by two equity analysts.
The minimum initial investment for “A” shares is $2,500 and the initial expense ratio is 1.45%. Nominally “A” shares carry a 5.75% load, though those are increasingly easy to dodge. The investment minimum for no-load “I” shares is $100,000. It should be available through about two dozen brokerages including Fidelity, Vanguard, Schwab, TD Ameritrade, and Pershing.