After a blistering start to the year, a number of international equity markets took a breather in the June quarter, including Germany (-8.53%), France (-2.58%) and the UK (-1.52%). Greece’s game of chicken with creditors rattled investors, as volatility crept back into view despite the European Central Bank’s best efforts to prop up asset prices through its €1 trillion quantitative easing program. Japan was a notable exception, as the local market gained 5.73%, seemingly unfazed. Meanwhile, the FMI International Fund (FMIJX – $29.72) fell by 2.03% in the quarter, which compares with an MSCI EAFE Index decline of 1.82% in local currency and a gain of 0.62% in U.S. Dollars. The Fund’s performance was aided by the technology services, consumer durables and retail trade sectors, while finance, electronic technology and distribution services were a drag on results. Amorepacific, Accenture and Hyundai GreenFood were the strongest individual contributors, offset by subpar performance from Fairfax Financial, Jardine Strategic and Rolls-Royce. In what continues to be a challenging investment landscape characterized by high valuations and weak business fundamentals, management of the fund remains cautious and selective. FMI exited three positions in the quarter by selling positons in Schindler due to a run-up in the valuation and increasing risks in China and Taiwan Secom due to valuation and liquidity constraints. Managers also parted ways with Royal Dutch Shell, as the company’s fully-priced $70 billion acquisition of BG Group will reduce much needed flexibility and may present integration challenges. The current top ten holdings as of June 30 showed the following positions:
The fund is also heavy in short-term cash, treasury bills and commercial paper, comprising about a 25% allocation.
Diversification by country as of the fund’s latest filing was as follows: