On 16 May 2022, Artisan Partners launched the Artisan International Explorer Fund (ARDBX / ARHBX). The fund is the public manifestation of their International Explorer strategy which launched in November 2020. Since inception, the IE strategy is up 41% annualized while its benchmark is up 31%. Currently, the fund is open only to advisors ($250,000 minimum) and institutions.
Artisan Partners is organized into autonomous management teams, each responsible for their own investment strategies and teams. This fund is overseen by the International Value team which is headed by David Samra and which advises the five-star Artisan International Value Fund. The IV team describes itself as “idiosyncratic investors who share a passion for investing in companies with unrecognized value. The team seeks to invest in high-quality, undervalued companies with strong balance sheets and shareholder-oriented management teams.”
The goal here is to build a concentrated portfolio of 25-30 high quality businesses in the least efficiently valued area of the public markets. They’re convinced that international small caps are the least efficient space because they’re hard to research, easy to misunderstand and lightly covered. And so they’re focusing here because it is where, they believe, they can most effectively “add alpha.”
The fund is managed by Beini Zhou and Anand Vasagiri, with David Samra sort of hovering protectively in the background. Mr. Zhou came to Artisan from Matthews Asia where he managed the Asia Value strategy and fund (since liquidated) but … Mr. Zhou came to Matthews Asia from Artisan, where he served as an analyst for seven years on the International Value team which he now rejoins. Mr. Zhou holds a BA in Applied Mathematics from Harvard and a MS in Computer Science from University of California-Berkeley.
I’ve spoken twice, at length, with Mr. Zhou at the Morningstar Investment Conference. I talk with lots of managers each year. He is among the most impressive I’ve met in terms of clarity and precision of thought and expression. He was, at our last conversation, in the midst of taking courses on artificial intelligence and teaching himself a new programming language with the intent of designing a program that could scrape qualitative data, not just statistical data, from conference calls and other corporate documents.
Mr. Zhou made two arguments: that Asian markets were evolving in a way that will benefit value investors and that most of the folks attempting value investing in Asia don’t “get it.” Doctrinaire thinking, or an over-dependence on quantitative measures, leads most investors into value traps. (He lays the argument out in “Value Investing in the Digital Age,” 2019)
He attempts to avoid those landmines using two, complementary strategies. First, he spends a lot of face-to-face time with management, deciding whether or not they’re the sort of people with whom he could invest. “The jockey,” he argues, “is often as important as the horse. When we meet with a founder in Asia, numbers are secondary and we use our initial first-hour meeting to inquire about the history, culture and DNA of the organization.” That’s the point at which individual intellect partners with deep linguistic and cultural knowledge to produce clues that others might miss.
Second, he tries to connect the dots in ways that others don’t. He sees great value in tech stocks despite the fact that “value orthodoxy avoids tech.” Ten of the hundred firms on his immediate watchlist, those that meet his quality criteria but don’t yet represent good value, are tech firms.
With luck, and skill, he identifies 30-40 “quality businesses where bad things have happened” that are actively changing their fate and that sell for $.70 on the dollar (“I want to buy a dollar for $.70 so long as it’s soon going to be worth more than a dollar”).
Mr. Vasagiri joined Artisan in 2019 as serving as portfolio manager for the Paradice Global Small Cap Strategy for nine years but …Mr. Vasagiri came to Paradice from Artisan where he served as an analyst for three years on the International Value team which he now rejoins. Mr. Vasagiri’s undergraduate degree is in mechanical engineering but he holds master’s degrees in business from both the Thunderbird School of Global Management (at Arizona State) and the Booth School of Business (at the University of Chicago).
The fund’s opening expense ratio is 1.42% after a modest fee waiver and the minimum investment for advisor shares is $250,000. The International Explorer Fund’s homepage is a bit sparse but there’s a solid “Insights” paper on The Artisan International Explorer process (2022) and a solid Year in Review (2022).
