Managers of the best-performing international equity funds say they are seeing resurgences in emerging markets, especially Russia, and among smaller companies.
"We've finally had a really strong revival in the small- and mid-cap companies," said Harold E. Sharon, a Warburg Pincus managing director who runs Warburg's International Small Company Fund.
The fund, which has risen 64.33% this year through April 30, buys into niche companies, such as Canada's Research in Motion, which makes two-way pagers, or Japan's Jac Co., which sells used cars over the Internet.
"A lot of people think Japan is ailing and sick," Mr. Sharon said. "If you know what you're doing, you can do very well."
In emerging markets, sweet sounds are resonating after protracted cacophony.
A big turnaround story is the Lexington Troika Russia Fund, which fell 82.98% last year but this year returned 50.76% through April 30, making it the top performer among emerging-market funds.
"We've waited two years for this recovery to take place," said Lawrence Kantor, managing director of Lexington Management Corp., Saddle Brook, N.J. "It's nice to see because it's giving the markets around the world a better tone."
He added that the apparent shift in Russia's stance toward Kosovo-to conciliatory from militaristic-relaxes concerned investors.
The country's plan to restructure its debt should continue to work in investors' interests, said John T. Connor Jr., portfolio manager of Third Millennium Russia Fund in New York.
Third Millennium Russia opened Oct. 1 and closed the year down 8%. But through April 30, the $100 million fund has climbed 43.37%. The fund is 90% invested in Russian stocks.
The leader among international equity funds, a broader category than emerging markets, attributes its success to not following the herd. Oakmark International I gained 35.11% through April 30.
"The average international fund is 80% invested in Europe," said David G. Herro, director of international equities and portfolio manager of the Oakmark International funds.
While Europe represented Oakmark International I's biggest allocation- 41.1% of its holdings at the end of April-it had 32% in the Pacific Rim, and 18.5% in Latin America.
Mr. Herro said picking individual companies despite market conditions gives him an edge over "rank-and-file managers" who he said are afraid to be invested outside the comfort zone of Europe.