Fund name: Scout International Discovery (UMBDX)

Adviser: Scout Investment Advisors, Inc. Scout is a wholly-owned subsidiary of UMB Financial, both are located in Kansas City, Missouri. Scout advises the nine Scout funds, including Scout Stock and Scout International. As of June 30, 2008, assets under the management of UMB and the Advisor were approximately $11.3 billion.

Manager: The lead manager is James L. Moffett, who joined the adviser in 1979 and has been a lead portfolio manager since 1993. Mr. Moffett manages two other funds (Scout International and Scout Stock) and 98 other accounts with $400 million in total assets under management. Overall, he’s worked in the industry for 40 years and is assisted by two other professionals: co-manager Michael Stack and research director Michael Fogarty.

Management’s Stake in the Fund: None, though the public record is only available for the fund’s first six months of existence. That said, Scout managers generally hold relatively modest positions in the funds they manager. In Mr. Moffett’s case, he has between $100,000 and $500,000 in Scout International but nothing in Scout Stock.

Minimum investment: $1,000 for regular accounts, reduced to $100 for IRAs or accounts with AIPs.

Expense ratio: 1.6%, after substantial waivers, on $15 million in assets. There’s also a 2% redemption fee on shares held less than 60 days.

Comments: The argument for Scout International Discovery (UMBDX) is pretty straightforward. UMBDX is managers by James Moffett, who has led Scout International since its inception fifteen years ago. Moffett is a wonderfully sensible guy: he’s careful about risk management, keeps individual positions small, trades lightly, avoids the trap of being drawn into "trendy" investments and isn’t afraid to allow cash to pile up. Those simple disciplines, and thoughtful bottom-up stock picking, have generated a tremendous record for high: consistently high returns with below average risk, top 10% relative returns and absolute returns which are two or three times greater than his peers. The domestic fund which he co manages, Scout Stock, is more of the same: consistently low risk and above-average returns from a reasonably large, reasonably low-turnover portfolio. Stock tends to be a bit less consistent than International but seems to offer strong downside protection.

I’m especially intrigued by an observer made by one of the managers of GRT Value (GRTVX). Greg Frasier, the absolutely outstanding manager of Fidelity Diversified International, now co-manages GRT Value. I was, as a result, surprised to find that GRTVX limited its international exposure to markets like Canada or to stocks available as ADRs (American Drawing Rights – basically a way for American investors to get access to relatively large, stable foreign firms without needing to set up an offshore brokerage account). Those seemed like awfully limited tools given Mr. Frasier’s virtuoso performance. As it turns out, Mr. Frasier is a quant and has spent a lot of time dissecting the sources of Diversified International’s success. His conclusion was that virtually all of the outperformance was driven by two factors: Canada and ADRs. Given the UMB Scout International and UMB Scout Worldwide, the two earlier monikers for Scout International, were famous for (a) success and (b) investing almost exclusively through ADRS, it looks like Scout might be on to something enduringly useful.

The question remains whether Mr. Moffett’s success in (mostly) large cap investing with translate into success as a smaller-cap guy. Enough other managers have succeeded, almost seamlessly, in transferring their disciplines from one market cap to another that I am not terribly worried. That fact that he can bring that discipline to the ordinarily wilder, boom/bust, high risk/high payoff world of international smaller caps (okay, allowing $17 billion firms into the portfolio stretches even the notion of "midcap" by a bit) makes this a potentially fruitful addition.

Bottom Line: For folks who were "born to be mild," Scout International Discovery offers a nice way to add just a touch of spice to their endlessly sensible diets. Not a lot of spice, but a satisfying dash.