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Best International Growth Stocks for 2012

Stocks in this article: TIGAXTIGCXTINGX

BOSTON ( TheStreet) -- Why would an investor buy international growth stocks in 2012 after an abysmal year in developed and emerging markets? Thornburg Investment's Alex Motola, who has made investors money where others have failed, has a few reasons.

By all accounts, 2011 will go down as a miserable year for international equities. In developed markets such as France, Germany, Japan and Italy, stock-market indices are down between 17% and 28% this year. In emerging markets like China, Brazil, Argentina and Chile, the losses are as high as 30%. The S&P 500 Index of the biggest U.S. stocks is down only 5% in a record year for volatility.

Motola, manager of the Thornburg International Growth Fund (TIGAX), argues that investors looking ahead to 2012 should consider international growth stocks because of the broad range of opportunities compared to the U.S. stock market.

"There are 500 stocks in the S&P 500 with about half in the growth category and half in value," Motola points out. "On the other hand, I have a universe of about 20,000 names before you separate the growth out. That gives me about 8,000 stocks to run through. It gives me that much more opportunity to find stuff. Half the names in our portfolio people have never heard of. I want to find the best 40."

Helped by his broader mandate, Motola's fund has been able to notch solid performance as it nears the five-year anniversary for the fund in February. Through Oct. 31, the Thornburg International Growth Fund has outpaced its benchmark, the MSCI All-Country Index (excluding U.S. growth), by a wide margin over almost every time period. A hypothetical $10,000 invested at the fund's inception would be worth $11,230 as of Sept. 30, compared with $8,453 for the benchmark index.

Motola says that the fund's outperformance has been driven by companies off the beaten path, many of which are based in Europe. The eurozone's ongoing debt crisis has torpedoed equities overseas, but Motola and his team at Thornburg have still managed to outperform.

"We've made money in Italy and Germany," he says proudly. "At the macro level, you don't see any growth opportunities. You aren't going to run out and buy Spain. But in our case, we're concentrated in growth, so we buy stuff that isn't correlated to the overall macro. We have a pretty good exposure to the U.K. We own stuff in Spain, Germany and France. If you're selective, you can do OK, but you're finding more of a headwind."

With a degree in medieval history, Motola is aware of dramatic changes that happened in Europe's history. What worries him is that the euro could be in a different situation in three weeks, whereas trends in Europe tend to play out over hundreds of years.

Motola notes that investors are held hostage by Europe's debt crisis for the foreseeable future, which dominates planning portfolios for 2012. But in the next year, Motola expects to see more interest in emerging markets that haven't received much attention.

"There's a lot of focus on China and Brazil, but India and some of the less appreciated markets will start to capture investors' imagination," Motola says. "There are reasons to be pretty positive. Indonesia has a young population. Places like that will be attractive."

Motola takes pride in that his fund traffics in areas that are off the beaten path. The $265 million fund, which is rated the highest of five stars by Morningstar, has its biggest exposure to the U.K. (22%), China (10%), Germany (8.3%), Japan (8.2%) and Ireland (6.2%). In terms of market value, the fund has more than 47% in small-cap stocks and 33% in large-cap names. In terms of composition, the portfolio has 33% in emerging growth names and the same amount in growth industry leaders.

Motola offers up four international growth stock picks owned in the Thornburg International Growth Fund with commentary on why these names could outperform in 2012, which are detailed on the following pages.

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