FOR years, fund managers have been promoting the advantages of holding shares in foreign markets, but investors remained cautious. Now, however, all their arguments about diversification, exposure to industry sectors that are not well developed here and the high growth in emerging markets are making an impression. While there are opportunities in the domestic areas, the Hongkong market represents only a very small slice of the world market capitalisation pie. As an investor, if you invest just in Hongkong shares, whether directly or indirectly, you are missing out on 98.3 per cent of the pie. International funds are attracting a tremendous amount of interest. Mr Paul O'Donnell, director of Hongkong's BT Fund Managers, says there are strong returns available in some overseas markets, which is a compelling reason for looking beyond the local market. The Bankers Trust Australia Group is one of the world's best-performing fund managers, and has recently entered the Asian funds management market with the launch of a new series of investment funds. The BT International Investment Sedes offers three types of funds denominated in US dollars - the International Growth Fund, Asian Growth Fund, and European Growth Fund - and provides investors with the opportunity to access various world share-markets by investing in diversified and professionally managed portfolios. The new series of managed funds contained in the BT International Investment Series mirror three existing funds in the BT Select Markets Trust, a unit trust established in Australia. The three funds being replicated have consistently been at, or near, the top of their performance categories in the Lipper Surveys of international investment funds. When compared with the top 10 funds in the International, European and Pacific Basin categories of the Micropal survey, the BT funds have clearly outperformed each category over two, three and five years. BT's International Growth Fund mirrors the BT Select Markets Trust International Fund, which has achieved 24 per cent return for the year to the end of December, and an average of 21.3 per cent return each year for the past five years. BT's Asian Growth Fund mirrors the sister Pacific Basin Fund within the BT Select Markets Trust, which achieved 33.7 per cent over the year to the end of December and an average of 33.6 per cent each year over the past five years. Mr O'Donnell says BT is always looking for opportunities to arbitrage against the market. ''We don't go for hot stocks because we can't add any value,'' he says. ''If you buy a hot stock you have to ask who is going to buy it from you and give you a profit. Instead, we work hard to identify neglected opportunities . . . those missed by the rest of the market.'' BT has a very different approach to buying shares, which is why it achieves such extraordinary results. ''The BT strategy is unique. We aim to seek out companies worldwide that are undervalued, and to never, never, buy on image. Most share trading is done on image, on the illusion of quality. Our approach should not be confused with a counter-cyclical strategy. ''We don't go against the trend just for the sake of it, but we do like to question the conventional view of the day. Most fund managers, like most people, want comfort; we try to avoid that tendency.'' Mr O'Donnell points to Europe as one region that presents tremendous opportunities. ''Take Switzerland, for example, which has had a bear market relative to other markets for more than 20 years'', he says. ''As a result, we have been able to identify and pick up some good companies selling on low price/earnings multiples, like Nestle for instance. We have seen some micro-reforms, changes to accounting standards and the rules governing investment management that will bring Switzerland more in line with its neighbours.'' Mr O'Donnell also believes several of the Latin American countries present exciting opportunities for investors, such as Chile, Argentina and Brazil, where the markets are blossoming. There are no particular favourites among the Asian markets, but each market offers some good buys. ''We buy where we find the value, without worrying too much about whether our geographic allocations are in line with the index.''