Krishna Mohanraj joined Diamond Hill Capital Management at an opportune moment. The portfolio manager started at Diamond Hill in 2012 when the investment firm, then primarily known for its domestic equities coverage, was slowly building up its international expertise. In 2019, it launched its International Fund. For Mohanraj, the fund was a perfect fit for his experience and abilities. The 47-year-old portfolio manager has lived and worked across three continents, crucially during tumultuous periods for markets. He grew up in South India during the economic crisis of the 1990s, worked for a software firm, i2 Technologies, in the U.S. during the tech crash of the early 2000s, and worked as a senior research associate at Sanford C. Bernstein in the U.K. in 2011. “It’s a combination of being in these different places” that’s led him to where he is, Mohanraj said. “Seeing how bad things can go and then recover. I feel like that’s framed who I am and how I invest today.” Today, the investor manages the Diamond Hill International Fund (DHIAX) , rated five stars by Morningstar. It may have started in 2019, but it has quickly built a strong three-year track record that places it in the top 5% of its peers, according to Morningstar. The fund’s already ahead 10.5% so far in 2023, landing it the top 15% of funds in its category. Mohanraj expects that’s because of the fund’s emphasis on differentiated bets. “International is so much fun, because it is the place you want to be active because the benchmark is so bad — because there are so many bad businesses, right?” he said. “So, it is the place where you want to be an active stock picker.” ‘Diamonds in the rough’ ideas To construct his portfolio, Mohanraj and his team first went exchange by exchange, wading through tens of thousands of international stocks, many of which he calls “mediocre,” to find roughly 1000 names that he considered investable. These are whittled down even further to a concentrated portfolio of just 54 stocks. The Diamond Hill fund, which is benchmarked against the MSCI ACWI ex USA Index, has roughly $65 million in assets, a 1.150% expense ratio, and . It also has low turnover of 21%. For investors, these names are long-term opportunities over a five-year period. What’s more, they are highly-differentiated businesses, whether they are well-known companies or are “diamonds in the rough.” “We think of our portfolio as roughly 50 companies, give or take five, of what businesses that we understand very well, which we think are the best opportunities,” he said. “And it’s that idea of a highly curated portfolio, of what I want to own in international, that’s the mindset.” One stock pick exemplifying the investor’s strategy is Dino Polska SA. The Polish grocery retail chain is not as well known to investors, but Mohanraj says it’s a fast-growing business that’s managed to carve out its own niche in the country. As of May, DHIAX had a 2.4% allocation in the holding. The Warsaw-listed stock is higher this year by more than 20%. Part of that growth has to do with its tiny store format. Dino Polska, which owns stores on its own land, typically operates in more rural areas outside big cities to avoid competition with the larger retail chains. The firm’s stores are concentrated more on the western side of the country. Meanwhile, Mohanraj said Poland itself is a unique market, as the country has not seen a recession in 30 years. What’s more, because of its typically smaller-sized housing, which was left over from its Communist history, its citizens take more frequent trips for groceries. “Going to a grocery store is almost a daily occurrence for them, so they kind of use it like an extended refrigerator,” Mohanraj said, adding, “They buy a lot of fresh food and meats, which is part of the diet.” He pointed out that Dino Polska also has its own meat operations. These characteristics have helped Dino Polska grow sales by 34% on a compounded annual growth rate basis over five years, according to FactSet data. “We keep asking, ‘Why aren’t the big guys competing? Why aren’t the big guys able to take market share?’ but it is something that’s sticky enough that they’ve been able to put up decent returns, and keep growing over a long period of time in a very unique setup,” Mohanraj said. “We like ideas like this where we think, ‘Hey, the market is still very under penetrated.'” Another company the investor really likes is Nintendo , a Japanese video game company that Mohanraj says is “not like any other company you’ve ever seen” given the multigenerational appeal of its intellectual property. When The Super Mario Bros. Movie released earlier this year, for example, it broke records at the box office, and is currently the top grossing movie worldwide in 2023, according to Box Office Mojo . “Disney is probably the only company that comes close to mind,” said Mohanraj, who as of May also has a 2.4% allocation to Nintendo. To be sure, there are times when the investor decides to sell his investments, either when the stock has enjoyed a significant run-up, or when the investment thesis does not pan out as he thought. One pick Mohanraj said he has considered for many years, but has so far not invested in, is Russia’s Sberbank. He said the bank is a good business that he worried may get caught up in some extreme outcomes in the country. The fund has diversified its bets across other firms as well. One of its biggest and longest-running bets is in Fairfax Financial, a Canadian holding company founded by V. Prem Watsa who’s considered the “Warren Buffett of Canada,” and runs his firm similarly to Berkshire Hathaway. “When you take the portfolio and compare it to the benchmark, sometimes it’s going to look different. Sometimes, it’s going to outperform, there are periods where it will underperform, but we are very confident that over very long periods, these are the places that you want to put your money in,” he said. “Especially if you’re worried about corporate governance or geopolitics or war, why would you just buy a fraction or a share of everything that’s out there, especially those mediocre names that you don’t think can thrive in the different iterations of the world,” he said. “There is a dizzying amount of risk out there.” Mohanraj, whose own interest in stocks started after reading Warren Buffett’s letters, said he benefits from a strong team who are all interested in the hunt for good businesses. “Every morning, it feels like we’re here to learn something new, try to retest our assumptions,” he said. “Doesn’t seem like work.”
