Mutual Fund Report With Craig Callahan of Icon Funds
Tuesday, June 06, 2006PAUL KANGAS: Until last month, it seemed that mutual funds specializing in foreign stocks could go only one way: up. Then, of course, the law of gravity kicked in. But all was not lost for shareholders of one fund that specializes in small and mid-cap foreign stocks: Icon International Equity Fund. Even after losing more than 10 percent over the last month, this fund is still up more than 8 percent since January. And last year, it returned better than 46 percent. Craig Callahan is the founder and president of Icon funds, and Craig, welcome back to NIGHTLY BUSINESS REPORT.
CRAIG CALLAHAN, PRESIDENT, ICON INTERNATIONAL EQUITY FUND: Nice to be here.
KANGAS: I guess the question that`s on everyone`s mind is, have the foreign markets peaked or are they experiencing just a pause?
CALLAHAN: Well, what happened early this year, it kept going. We might have seen peak type conditions but we`re value investors and now with this pullback we think there`s more in store for the next year to the upside.
KANGAS: Now we know that when it comes to stock collection, Icon Funds use the quantitative method. How does that work and do you do anything differently when you`re looking for stocks in foreign markets?
CALLAHAN: We do it just like we do in the U.S. We have a valuation equation we apply to about 2,000 international stocks and we look for industries that have the potential to lead over the next two to three years.
KANGAS: Interesting. Since you`re dealing with small and mid gap stocks in the international equity fund, I don`t suppose that your holdings are exactly household names, but tell us about some of the favorite stocks that are in the equity fund now.
CALLAHAN: They generally tend to concentrate in an industrial, cyclical type economically sensitive theme. Vallourec in France.
KANGAS: Industrial machinery.
CALLAHAN: Industrial machinery and even an energy play there with steel tubing that they make.
KANGAS: U.S.G. People?
CALLAHAN: Great position. They`re in human resources of course with people through changing times. They need reeducation, retraining in their careers. They`re in a great spot.
KANGAS: And then a Hong Kong outfit, Hopson Development.
CALLAHAN: We find it to be about 37 percent, our estimate of fair value in developing real estate in Hong Kong.
KANGAS: How large a percentage of your portfolio do these three represent roughly?
CALLAHAN: They`re typically 2 percent. We`re very diversified.
KANGAS: All right. Let me just ask you if you personally own any of those stocks.
CALLAHAN: I do not personally but indirectly I do through owning this mutual fund.
KANGAS: Obviously. A lot of analysts think stocks of the emerging markets are especially vulnerable right now. So if investors are concerned about the stability of emerging markets, how does Icon International Equity stand in terms of its mix of stocks?
CALLAHAN: Being quantitative, we need certain data to estimate fair value and we just don`t get that data for emerging markets, so we tend to have very little exposure there. KANGAS: We only have a minute left but a weak dollar tends to help stocks that are denominated in foreign currencies. If the dollar continues to drop, would that mean higher returns for this fund?
CALLAHAN: It would. It would be a boost. We do not hedge right now. But interesting when you look back the last two and a half to three years, the dollar is just about where it was then. So long-term investors have not gained or been hurt by currency.
KANGAS: So the fund really doesn`t gyrate that much in tune or out of tune with the dollars` movement.
CALLAHAN: No, that`s part of investing internationally is getting into different currencies.
KANGAS: Any last minute thoughts you want to leave with our viewers. We`ve got about 15 seconds.
CALLAHAN: Base on value, we see international stocks to be about 25 percent below our estimate of fair value. So we would expect price to try to approach value over the next year.
KANGAS: Very interesting, Craig. I want to thank you for your insights.
CALLAHAN: Pleasure to be here.
KANGAS: My guest, Craig Callahan of the Icon International Equity Fund.
