Foreign Stocks Have Given These Funds Oomph
Keeping an eye abroad in recent years has led to impressive results.
If your domestic equity funds have outperformed their peers in recent years, that may be because your funds have been shopping abroad. Diversified domestic stock funds, on average, hold around 10% in non-U.S. stocks, and for the most part, foreign stocks have locked in higher gains in recent years than U.S. stocks have. (Over the past five years, average total returns for diversified foreign funds were between 17% and 33%, while the top diversified domestic category's return over that stretch was less than 15%.) Considering this, domestic funds with heavy doses of foreign stocks often outpaced their peers that didn't venture outside the United States.
This screen is meant to find fund managers that hold larger foreign stakes than their counterparts and that also have other attributes that Morningstar analysts value. We'll add a word of warning, though. After years of eye-popping returns, international markets have recently taken a pretty big tumble. For the year to date through March 26, 2008, the foreign small/mid-value category is down 12%, while the Pacific/Asia ex-Japan category has fallen by 25%. So, while these funds' foreign stakes have helped returns over the five-year period, they may be adding to volatility--and sinking returns--in 2008.
We first zeroed in on domestic stock funds with top-third five-year rankings in their respective categories with managers at the helm for more than five years. We selected funds that had more than 15% of assets invested outside the U.S. and Canada (the Premium Screener combines stocks from the U.S. and Canada when screening for regional exposure). We also required that less than 5% be stowed away in cash (this keeps out fund managers who sit on large chunks of cash). And per our usual, we limited the list to funds with below-average fees and investment minimums below $10,000.
The Premium Screener pulled these funds as of March 26, 2008:
AIM Leisure (FLISX)
American Century Veedot (AMVIX)
Dodge & Cox Stock (DODGX)
Excelsior Value & Restructuring (UMBIX)
Gabelli Asset AAA (GABAX)
Janus Contrarian (JSVAX)
Manning & Napier Pro-Blend Max Term (EXHAX)
Marsico Growth (MGRIX)
Neuberger Berman Socially Responsive (NBSRX)
Oppenheimer Value (CGRWX)
T. Rowe Price Personal Strategy Growth (TRSGX)
T. Rowe Price Spectrum Growth (PRSGX)
Thornburg Core Growth (THCGX)
Van Kampen Growth and Income (ACGIX)
As of the most recent holdings reports, the funds on this list have between 15% and 45% stashed in foreign stocks. Some of these managers concentrate on familiar industry leaders, like cell phone maker Nokia (NOK) or electronics giant Sony (SNE). Others go after lesser-known names, such as India's ICICI Bank (IBN). Janus Contrarian, run by David Decker since its 2000 inception, has been a large-blend category leader in recent years in large part because of its big stake in Indian companies, including ICICI Bank. Decker sees more good opportunities coming from the Indian banking and power industries, as well as from real estate companies in Asia. Compared with the other funds on this list, Janus Contrarian holds the largest swath of international names--around 40% of assets--but that's still not enough to kick the fund into one of Morningstar's foreign fund categories. (Funds need to keep at least 80% of their assets abroad to be classified as foreign funds.)
Another fund with a heavy helping of international stocks is Manning & Napier Pro Blend Max Term. The fund's veteran team is made up of global analysts who are organized by industry and who also funnel ideas into the firm's foreign large-blend funds: Manning & Napier Overseas (EXOSX) and Manning & Napier World Opportunities (EXWAX). Before a stock is added to any one of the portfolios, the pick must be supported by an analyst as well as one of the eight members of an investment oversight committee. The success of that stock is tied to both their compensation plans. To cite one example, the team recently added Calfrac Well Services, a Canadian gas-well-services company, to all three funds. Although the stock tumbled on macroeconomic concerns, they like it because it's expanding its scale globally, which should benefit the firm over the long term. This fund posted fantastic returns during the bear market years of 2001 and 2002, and true to form, the fund has lost less than the typical peer so far this year.
Morningstar.com Premium Members can run this screen themselves by clicking here. Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial. (Note that the results may change as funds come in or drop out of the screen over time.)
Karin Anderson has a position in the following securities mentioned above: DODGX. Find out about Morningstar’s editorial policies.