Shrewd Ways to Increase Your International Exposure
These funds won't feel much pain if emerging-markets stocks slow down.
Performance-chasers may be attracted to high-flying international categories such as Pacific/Asia ex-Japan stock, Latin America stock, and diversified emerging markets--each of which has five-year annualized average returns north of 30%. However, funds in these categories court plenty of risk by investing in stocks of companies domiciled in developing markets, many of which can be politically and economically less stable than their developed-market peers.
Given that the past five years have been stellar for emerging-markets offerings, these categories may be due to cool off. Investors may grow more risk-averse and place more value on developed-markets fare. Under this scenario, foreign funds that are more focused on developed economies and larger-cap companies would take the lead.
Also, now might be a good time to consider diversifying away from emerging-markets holdings, especially if that allocation has grown too large compared with other holdings in your portfolio. This could be a good time to lock in some of these gains and rebalance into an area that hasn't done as well lately.
This screen is designed to highlight funds from the most diversified international stock categories that have fewer assets tied to stocks in emerging-markets countries. The screener has six options for regional exposure: North American and Canada, Europe, Japan, Pacific, Latin America, and Other. We searched for funds with below-average stakes in the Pacific, Latin America, and Other categories. (Although some markets that fall under these three headings are classified as developed, according to MSCI, funds with heavy weightings in these buckets will tend to have high emerging-markets exposure as well.) We also required that the managers have at least a five-year record on the fund and that performance land in the top third of the fund's respective category. Finally, we screened for funds with expense ratios that fall at or below the category average.
As of Dec. 4, 2007, the screener pulled the following 20 funds:
AIM Global Aggressive Growth A (AGAAX)
American Century International Discovery (TWEGX)
American Funds New Perspective (ANWPX)
Columbia Marsico Intl Opp Z (NMOAX)
DFA Intl Small Cap Value (DISVX)
Fidelity Canada (FICDX)
Janus Aspen International Growth (JAIGX)
Janus Overseas (JAOSX)
Mainstay ICAP International (ICEUX)
Manning & Napier World Opportunity (EXWAX)
Marsico International Opportunity (MIOFX)
Nuveen Tradewinds International (NGRRX)
Oppenheimer Global Opportunities (OPGIX)
Oppenheimer Intl Growth (OIGAX)
Phoenix Foreign Opportunities (JVIAX)
Polaris Global Value (PGVFX)
UMB Scout International (UMBWX)
Vanguard Developed Markets (VDMIX)
Vanguard Global Equity (VHGEX)
Vanguard Tax Managed Intl (VTMGX)
This screen returned some solid choices in the world stock, foreign large value, foreign large blend, foreign large growth, foreign small/mid value, and foreign small/mid growth categories. American Funds New Perspective is an Analyst Pick, meaning it's one of our favorites in the world stock category. A handful of seasoned managers each run a slice of this portfolio, and they seek out-of-favor companies anywhere in the world that they can hold on to through thick and thin. The managers also find ways to indirectly invest in emerging-markets countries. For example, Austrian Erste Bank is one of the favorites in the portfolio, and it has benefited greatly from its expansion in Eastern Europe.
As for foreign large value funds, Mainstay ICAP International is also an Analyst Pick. Comanagers Jerry Senser and Tom Wenzel are carrying on the management style of the late, great Rob Lyons, by combining macroeconomic calls with stock-specific analysis. Although it has held a decent-size stake in Chinese firms, it tends to favor steady large-cap multinational firms.
Oppenheimer International Growth is an Analyst Pick in the foreign large growth category and holds a slightly larger stake in emerging-markets stocks compared with the aforementioned Analyst Picks. Manager George Evans tends to focus on smaller-cap and emerging-markets fare more than some of the other funds on this list, which adds to overall volatility. That said, Evans maintains a long-term outlook, which shows through in the fund's ultralow turnover, and he also spreads the fund's risk over more holdings compared with the typical foreign large growth peer.
Then there's Vanguard Developed Markets Index, which invests only in countries classified as "developed" by MSCI. This fund invests in two funds that focus on developed markets of Europe and Asia, respectively. The fund's rock-bottom expense ratio gives it a lot of appeal, but it may not be an ideal long-term choice for those who want just one international stock fund because it's worth having at least a little emerging-markets exposure over the long term.
Morningstar.com Premium Members can run this screen themselves by clicking here. (Note that the results may change as funds come in or drop out of the screen over time.) Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.