For the full year 2016, the FMI International Fund (FMIJX – $30.64) generated a 10.0% return, outpacing the MSCI EAFE’s gain of 5.34%. The conservatively managed portfolio that invests in large cap value companies, outperformed in the first half of the year when overseas markets were under pressure, but lagged during a more euphoric second half rally. Unfortunately, high quality businesses continue to be richly valued, as quantitative easing and exceptionally low (or negative) interest rates are providing a boon to financial asset prices and valuations. International markets looked right past Brexit, the Italian referendum, rising debt levels and weak economic and business fundamentals, demonstrating a complacency which has become commonplace in recent years. While risk and uncertainty remain high, so too do the inflated expectations for asset appreciation. In this context, the fund plans to continue to err on the side of caution and exhibit patience as they wait for attractive valuations to come their way before putting its large cash position to work.
As of year-end, FMIJX held 68.71% of its portfolio in foreign stocks, 14.25% in U.S. domestic companies, 15.23% in cash and 1.81% in preferred stock. By country, the fund is allocated as follows:
35.2% of the fund’s portfolio is invested in shares of industrial companies, followed by consumer staples (15.9%), consumer cyclical (15.2%) and technology (13%). The top ten holdings, representing about 35% of the $5 billion portfolio are:
The fund continues to be rated five-stars out of five by Morningstar for the past year, past three years and past five years, and can be held by conservative investors wishing to participate in global markets.