Mutual fund investors often believe that a solid 10-year track record tells them all they need to invest with confidence. Although a fund’s long-term performance is a key consideration, those numbers can be misleading, particularly in the wake of a management change. Here’s one fund whose dismal record over the long haul masks its recent strength.

Based on Harbor International Growth’s (HIIGX) disappointing long-term record, few investors would be blamed for avoiding the fund; the fund’s 10-year performance puts it at the bottom of its category.

But if you dig a little deeper, you’ll find that the fund generally outperforms it benchmark on an annual basis.

James Gendelman constructs his portfolio by identifying broad economic themes and then buying into rapidly growing companies from around the world that correspond with these macroeconomic trends. A growth investor through and through, Gendelman’s buy calls aren’t particularly valuation sensitive; he acknowledges his willingness to pay up for growth, and the price-to-earnings ratio of his portfolio exceeds 15. On a price-to-book basis, he typically pays about two times book value for his holdings.

This approach provides little cushion when the inevitable down days hit, lending a fair degree of volatility to the portfolio. But that’s not why the fund’s long-term performance appears so weak.

Gendelman has managed Harbor International Growth since early 2004. Although there have been some hiccups along the way, Gendelman has beaten his benchmark since taking the helm. A portfolio manager and senior analyst with Marsico Capital Management, Gendelman’s has also helmed Marsico International Opportunities (MIOFX) and Columbia Marsico International Opportunities (MAIOX) since their inception in 2000. Expense ratios are higher on Gendelman’s other funds, though the three feature the same strategy.

Gendelman’s track record at his other two funds demonstrates that his strategy works well, but in the case of Harbor International Growth, the relatively weak run of his predecessor obscures this strength.

The fund is currently heavy on emerging-market stocks, which account for about a third of the fund’s holdings. The core of the portfolio, however, focuses on the developed markets of Europe. Switzerland is the fund’s largest country concentration, commanding 15 percent of assets. German equities account for 11.4 percent of the fund’s investable assets.

Although Gendelman’s portfolio is heavily tilted toward financials and commercial banks constitute 10.5 percent of assets, Daimler (NYSE: DAI) is the largest holding and accounts for 3.5 percent of assets. The German manufacturer of Mercedes-Benz automobiles should grow sales in 2010 after the European equivalent of the Cash for Clunkers program boosted purchases of smaller, fuel-efficient cars. The automaker also expects to post strong sales growth in Asian markets; its brands are particularly popular with China’s growing middle class.

With an expense ratio of 1.27 percent, Harbor International Growth is relatively inexpensive for its category and is an excellent option for investors with higher risk tolerances. Prospective investors should expect volatility; the fund’s beta runs about 1.11 relative to both the S&P 500 and the MSCI World ex US Index. That being said, Harbor International Growth offers exposure to key growth markets and should generate excellent returns.

WHY TO BUY
Harbor International growth (HIIGX)
• Exposure to key growth markets
• Experienced management and proven strategy
• Relatively inexpensive