A recent Barron’s article profiles Magnus Larson–lead manager of the AMG TimesSquare International Small Cap Fund ($1.2 billion)—who has been able to deliver a 13.6% five-year annualized return (reportedly beating 94% of its peers) by “using old-fashioned stock picking, with analysts doing on-the-ground research at specific companies.”

According to the article, “international small-mid-capitalization stocks are one of the few market sectors where active management can consistently add value. They are poorly covered by financial analysts, and thousands of them aren’t even included in benchmark indexes, so managers who find good undiscovered companies can beat passive funds.”

Larsson says his strategy is supported by his team’s deep understanding of local business cultures—he spends two to three months a year on the road. “Two key things that differentiate us,” says Larsson, “are we have one of the most experienced foreign small-cap teams, and we are all from overseas.” He says that management matters more at small companies, so meeting the CEO is important, and significant insider ownership is a plus.

Larsson’s favorite companies, he says, have steady cash flow and are dominant players in industry niches. “We love those kinds of situations,” he says, “when our companies have a very small part of a much bigger value chain, but they’re mission-critical and hence the customer would not want to save money on such a small thing and risk everything.”

Larsson asserts that growth funds tend to be volatile and that the average growth investor fails to focus enough on valuation. “Investors get swayed by the fantastic growth prospects of companies and forget everything has intrinsic value.”