After a sharp decline at the beginning of the year, Tyco Electronics posted a 70% gain in the second quarter after the sale of one of its divisions helped shore up its balance sheet. Despite the recovery, Samra still considers the stock extremely cheap. Freight transport company Panalpina Welttransport rose 50% in the second quarter in the wake of unfavorable global trade data.
Although its profits have declined, management has done a good job of cutting costs, maintaining market share and generating cash.

On the other hand, longtime fund holdings Novartis and Covidien have lagged the market this year after outperforming it in 2008. Although the considerable uncertainty surrounding U.S. health-care reform continues to depress the sector, Samra believes that the companies are well run and their stocks very cheap. Arch Capital, a Bermuda-based insurance company, has also lagged the market after losses from Hurricane Ike and regulatory attacks on the tax benefits associated with Bermuda-domiciled companies.

Samra is confident about the company's underwriting standards, its asset management capabilities and its ability to navigate changes in tax law.

Cautious on Emerging Markets
Samra and O'Keefe honed their value hunting skills at Harris Associates in Chicago, where they met in 1997. At the time O'Keefe, who studied philosophy at Northwestern, had just come off stints as a mergers and acquisitions specialist at BancAmerica Securities and before that, as an analyst at Morningstar. Samra had followed a more traditional route from Columbia University, where he had obtained his M.B.A., to a position as a portfolio manager for Montgomery Asset Management.

In 2002, the pair left the Midwest for San Francisco's warmer climate to open Artisan's West Coast office and start the Artisan International Value Fund, as well as, more recently, the Artisan Global Value Fund. "My one regret about leaving Chicago is that the tax rates in California are outrageous," says Samra.

They were compensated for some of that personal financial pain when the fund saw strong inflows, so strong in fact that the managers closed it in early 2007. It reopened to investors in 2008-unfortunately, just in time for the market crash-and finished the year down 30.1%. Still, even though the loss was substantial, the fund beat the 43% loss of the MSCI EAFE Index and helped the team earn Morningstar's International Stock Manager of the Year award for 2008.

Over the long term, the fund's strategy has generally worked well. Between its inception in September 2002 and June of this year, its average annual total return was 14.26%, compared with 8.48% for the MSCI EAFE and 9.52% for the MSCI EAFE Value Index. But there have also been stretches of underperformance such as in 2007, when economically sensitive cyclical companies and emerging markets rallied sharply. Both are areas where the fund treaded lightly.

Samra continues to take a cautious view of emerging markets, in part because the reporting, governance and regulatory practices in these areas make it difficult to pinpoint intrinsic values. In some countries, such as South Korea, consolidated financial statements are not always available. And Russia does not yet recognize that shareholders, not the government, own publicly traded enterprises.

Given the managers' skepticism, it is not surprising that Europe and North America dominate the fund, accounting for 64.1% and 15.4% of equity assets. Pacific Basin countries and emerging markets round out the geographic roster with allocations of 13.2% and 7.3% of the equity assets, respectively.

"The valuations of emerging markets relative to developed markets are not low enough to justify the added risk of investing there," he says. "There are plenty of opportunities elsewhere."