For much of the last decade, investors have prized big U.S. growth companies, like Amazon and Apple, above other sorts of stock-market sectors.
In the fourth quarter, despite the Covid-19 pandemic, the market rewarded a greater variety of stocks. In a hard-to-figure surge — the S&P 500’s total return was 11.07 percent — all sorts of investment approaches gave hefty returns.
Consider the diversity of three of quarter’s top-performing mutual funds. One invested in Latin America; another in companies at the forefront of the transition to renewable energy; and the third in so-called value stocks, that is, those priced cheaply based on estimates of their underlying worth.
T. Rowe Price Latin America
Tech stocks aren’t absent from the T. Rowe Price Latin America fund, managed by Verena Wachnitz. It’s just that the ones Ms. Wachnitz buys aren’t household names in the United States. Instead of investing in Amazon, Ms. Wachnitz has bet on e-commerce by buying MercadoLibre, an Argentine company that operates throughout Latin America, and Magazine Luiza, a Brazilian outfit.
“The pandemic has been a blessing for this kind of business,” she said. “It has really accelerated the adoption of e-commerce.”
MercadoLibre now has the second-largest market capitalization, behind the mining company Vale in Brazil, among stocks listed in Latin America, she said.
The name of Ms. Wachnitz’s fund makes plain her mission: buying shares of companies based in Latin America. She prospects heavily in Brazil and Mexico, because those countries’ markets loom large in the region. Brazilian stocks account for about 64 percent of the assets of her fund, and Mexican ones 15 percent.
Ms. Wachnitz said she’s optimistic about the economic prospects of Brazil, and less so about Mexico’s.
Brazil’s president, Jair Bolsonaro, has been a lightning rod for international criticism. With his penchant for outrageous tweets, he’s the self-styled “Trump of the tropics,” and his administration has been investigated for possible corruption. But he has pursued pro-market policies, she said.
“The reason the market likes his administration is because he’s partnered with his current finance minister, a University-of-Chicago-trained economist who’s trying to push reform and deregulation,” Ms. Wachnitz said.
In contrast, Mexico’s economy has struggled more. “It’s been the worst job destruction since the Tequila Crisis in the ’90s,” Ms. Wachnitz said, referring to a currency devaluation in Mexico that had severe economic consequences.
Many companies in emerging markets, including in Latin America, don’t hew to developed-world governance standards, such as minority shareholder protection and board independence.
Ms. Wachnitz said she avoids those that don’t. “If there’s a corporate governance issue, I won’t invest,” she said.
The T. Rowe Price fund, which has an expense ratio of 1.29 percent, returned 33.73 percent in the fourth quarter and an annual average of 11.84 percent over the five years that ended Dec. 31.
Calvert Global Energy Solutions
Technology shapes the holdings of the Calvert Global Energy Solutions Fund, too. But it’s not online shopping or iPhones. Rather, it’s the array of technologies enabling the transition to what could be a cleaner, greener world.
The fund tracks Calvert’s proprietary Global Energy Research Index. It holds 154 energy stocks in four major groups — technology creators, enablers of efficiency, renewable power producers and the most efficient corporate users.
“We wanted to offer investors a way to be exposed to companies all along the value chain that are contributing to solutions for global energy challenges,” said Jade Huang, Calvert’s director of index management.
Any company in the index must meet criteria that include being environmentally sustainable and well governed, as well as not having significant involvement in the production of alcoholic beverages, tobacco products, civilian handguns or assault weapons, or nuclear weapons.
Most of the portfolio is weighted by market capitalization: Companies with larger market caps are bigger holdings.
The exception is the most efficient energy users, which are equally weighted, Ms. Huang said. “Within that category, we have big companies managing their energy usage effectively, but we have small innovators, too. We didn’t want the large-cap names to dominate.”
Many of the fund’s holdings appear to have benefited from the results of the U.S. presidential election, Ms. Huang said. President-elect Joseph R. Biden Jr. has committed to addressing climate change. That should stoke demand for the products and services of the companies the fund invests in.
Among the fund’s recent strong performers, for example, were companies that will enable the adoption of electric vehicles, including BYD, a Chinese vehicle maker, and SolarEdge, a U.S. maker of vehicle chargers.
Another factor that may be propelling the companies in the fund is that governments worldwide are stepping up their efforts to address climate change, Ms. Huang said: “China has said it will be carbon neutral by 2050. The E.U. and the U.K. have committed to that. Even some US states have.”
The Calvert fund, whose A shares have a net expense ratio of 1.24 percent, returned 32.37 percent in the fourth quarter and an annual average of 15.92 percent for the five years that ended Dec. 31.
Third Avenue Value Fund
A marker of just how many investing approaches flourished in the fourth-quarter enthusiasms was the gains of the Third Avenue Value Fund, managed by Matt Fine.
Mr. Fine’s style of picking stocks, value hunting, has been out of favor for several years. Growth investing — that is, buying stocks whose earnings are expected to rise at above average rates — has so outdistanced value that some commentators have wondered whether a growth-stock bubble has arrived.
Mr. Fine says growth stocks are extremely expensive: “If you look at the spread between the most and least expensive companies in equity markets, it’s historic in proportion.”
Mr. Fine hunts for stocks among the cheapest fare. “We’re looking for out-of-favor situations with significant mispricings.”
He has managed the fund since 2014, but it began in 1990, under the direction of his mentor, Martin Whitman. Mr. Whitman was known as a “vulture investor” for scooping up shares of deeply troubled — and very cheap — stocks.
Mr. Fine invests around the world and across market caps to find his bargains.
Recently, only about 40 percent of the fund’s assets were invested in U.S. companies, with the rest spread among countries like Germany and Italy. The assets were also distributed among market caps of every size.
Mr. Fine is willing to make big bets when he finds companies or industries he thinks others have misunderstood.
Take home building, represented by a variety of his recent holdings, including Interfor and Weyerhaeuser. Interfor, a Canadian company, operates lumber mills, while Weyerhaeuser owns timberlands and mills.
“Very little supply has been added to U.S. lumber markets,” he said. “Meanwhile, there’s been dramatic reduction in British Columbian supply. So supply has been reduced at a time when demand is rising very fast, and you’re enjoying record-breaking lumber prices.”
The pandemic has contributed to that demand, because many people have used their time stuck at home to renovate, he said.
For similar reasons, the fund has stakes in two suppliers of other sorts of building materials — Buzzi Unicem and Eagle Materials. The former is an Italian cement and concrete company with a big American presence, the latter a U.S. maker of cement, concrete and wallboard.
Third Avenue Management in New York, the sponsor of Mr. Fine’s fund, underwent a period of management turmoil about five years ago. One of its debt funds had to be liquidated, but the Value Fund wasn’t directly involved in the difficulties.
The Third Avenue fund, whose investor shares have a net expense ratio of 1.4 percent, returned 35.84 percent in the fourth quarter and an annual average of 4.5 percent for the five years that ended Dec. 31.