January 2021 IssueLong scroll reading

Launch Alert: Wasatch Greater China

By David Snowball

On November 30, 2020, Wasatch Global Investors launched Wasatch Greater China Fund (WAGCX/WCCCX). The “Greater” part signals the inclusion of firms located in Hong Kong and Taiwan, as well as in the PRC proper. The fund will feature an all-cap portfolio of 35-50 names. This is Wasatch’s second country-specific fund, after the five-star Wasatch Emerging India Fund (WAINX), which launched in 2011.

The fund will be managed by a five-person team. The lead manager is Dan Chace, who has been at Wasatch for 18 years and who helps manage their Emerging Markets Small Cap Fund (WAEMX, four stars) plus their Micro Cap Growth and International Micro Cap strategies. The latter two have been wildly successful but are available only to institutional investors. The team is part of Wasatch’s emerging markets group. The folks at Wasatch describes the team this way:

The Wasatch Greater China Fund and underlying strategies will be managed within Wasatch’s existing emerging markets team, which is pleased to count two native Mandarin speakers among the more-recent assets comprising its world-class staff. For more than 45 years, Wasatch has successfully applied its bottom-up, research-driven approach, starting with U.S. micro- and small-cap stocks, before expanding into international and emerging markets.

Our emerging markets team currently manages four strategies with a combined $4.4 billion in AUM, focused on small- and mid-cap companies across emerging and frontier markets, including focused investment in India, whose economic growth story shares many similarities with China’s.

Wasatch also prides itself on its “due diligence.” To us, this entails boots-on-the-ground research. In normal environments, Wasatch’s portfolio managers and analysts collectively make well over a thousand trips per year to meet with company management teams all over the world.

The strategy targets the highest-quality growth companies as measure by strong financials, a sustainable competitive advantage, excellent management teams, and the prospect of above-average earnings growth. The process is described as “active, collaborative, bottom-up, fundamental.” We asked the folks at Wasatch two questions at the fund’s launch: (1) why now, especially after a year of substantial gains in Chinese stocks, and (2) why bother? That is, we already have more China-centered funds and more really good China-centered funds than any reasonable investor needs. Why add another? Here’s their take on it:

We believe it is still early enough in the Chinese market’s growth narrative to be worth our time and attention … The recently increased inclusion of Chinese companies in MSCI’s emerging-market indexes is likely to prove part of a continued, longer-term trend. The added companies represent a sizable injection of new prospective investments, and a move toward full inclusion is likely to increase the odds that investors consider “ex-China” approaches to China exposure.

… China offers a broad, deep and dynamic market, which includes many companies that meet Wasatch’s fundamental criteria for quality and growth. In short, we believe the opportunity set in China has become “too big to ignore.” While China’s growth in recent decades has been historic, we believe the market remains rich with opportunities to capture long-term growth, including in sectors such as health care, where expansion into underpenetrated, typically rural regions is likely to continue for the foreseeable future.

For investors seeking either supplemental or standalone exposure to China, we believe the Wasatch Greater China strategy offers several advantages, including dedicated exposure to China that covers the “Greater China Region”—including companies based in Mainland China, but also companies in Hong Kong and Taiwan that derive the majority of their business from China. We have also sought to differentiate the offering through its construction, focusing on areas where we believe we can find sustained growth at attractive valuations.

In general, and over time, Wasatch’s discipline works. Wasatch advises 18 funds, with 94% of the firm’s assets being in four- and five-star rated funds. One-third of the Wasatch funds have earned MFO’s Great Owl designation, awarded to funds that have risk-adjusted returns in the top 20% of their peer groups over the past 3, 5, 10, and 15 year periods. Fully half of their funds are on MFO’s Honor Roll, awarded to funds with total returns in the top 20% of their Lipper peer group for the past 1, 3, and 5 year periods. Wasatch has only two lower-rated funds, Global Value and Frontier Emerging Small Countries, both of which suffer more from the nature of their mandate than from its execution.

The fund’s opening expense ratio is 1.50%, and the minimum initial investment is $2,000. The fund’s homepage is, understandably, still pretty much a shell with …modest content.

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.