Wasatch Emerging Markets Small Cap Goes Its Own Way

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The MSCI Emerging Markets index includes 27 countries and more than 1,400 stocks – a broad assortment, to be sure. Finding the most promising investments among those stocks and thousands of other candidates can’t be easy. But the four managers at Wasatch Emerging Markets Small Cap (WAEMX) have a disciplined approach.

They start with a quantitative screen that “tees up good ideas,” says Ajay Krishnan, a comanager. The screen helps them zero in on high-quality companies with healthy profits (measured by return on capital) and cash flow. Then they research each prospective firm from bottom to top and top to bottom.

The process results in a portfolio of roughly 50 to 80 stocks. It’s a diversified list, but in some ways not as diversified as other emerging-markets stock funds. Not every sector finds a place in Emerging Markets Small Cap, for instance. The profitability screen makes sure of that. And only nine emerging-markets countries are…

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