Start Your World-Stock Fund Search Here
These globe-trotting stock funds should be easier to stick with over the long haul.
World-stock funds certainly have their charms, including regional diversification and the potential to be a one-stop option for equity exposure. Of course, diversification doesn't protect world funds in all market environments; the typical world-stock fund lost a staggering 42% in 2008. That said, world-stock funds fared better than most other international-stock categories during that time frame, particularly those that were more heavily invested in U.S. stocks.
To start the search for strong options in this category, we first used the Premium Screener to select world-stock funds with top-third 10-year records relative to their category peers. In terms of risk, we narrowed the field down to funds that have achieved low, below-average, or average Morningstar Risk ratings. This measure assesses variations of monthly returns compared with similar funds over the three-, five- and 10-year periods, penalizing funds with more downside risk because investors are particularly sensitive to absolute losses. Compared with funds with higher risk ratings, these funds should be easier to stick with through the rough patches. Lastly, we set the screen to pull funds that are open to new investments and which also sport reasonable price tags.
To view the results as of Jan. 5, 2009, click here.
Anne Gudefin and Shawn Tumulty have run Mutual Qualified (MQIFX) for several years with strong results. And in 2005, Gudefin stepped in to run Mutual Discovery (MDISX), another of the firm's world-stock offerings, with the help of Mandana Hormozi and Charles Lahr. Part of the managers' success comes from their expertise in assessing distressed companies and merger-arbitrage opportunities, and more recently, their latitude to hold large amounts of cash. Toward the end of 2008's third quarter, these funds each held roughly 30% of assets in cash, cushioning the funds from the broad market meltdown. Preservation of capital is a guiding principle at Mutual Series, and we think their focus on downside risk should serve investors well longer-term. We'd also add that these funds' currency exposure is mostly hedged back to the U.S. dollar, which tends to keep a lid on volatility over the long haul.
Manager Rajeev Bhaman of Oppenheimer Global (OPPAX) tends to hang on to his picks for several years, and he made no uncharacteristic moves to cash during 2008's market turmoil. This Fund Analyst Pick didn't escape last year's carnage, especially with no cash buffer and a few missteps, including owning commercial insurer American International Group (AIG). Keeping position sizes fairly small helps limit the impact of individual stock blow-ups, though. In general, investors should keep in mind that it takes years for some of Bhaman's stories to play out. For example, his decision to tread lightly in energy and materials compared with the MSCI World Index in recent years better positioned the fund to withstand the commodity bubble's recent burst. In the end, we think Bhaman's consistently applied process should deliver the goods over the long haul, and he benefits from collaboration with the seasoned managers of Oppenheimer's international equity team.
Though longtime manager Marty Whitman has been hit by shareholder redemptions, we think Third Avenue Value (TAVFX) is another interesting option. Whitman has reported that many of his stock sales in recent months have been necessary to meet redemptions, and that he's had to maintain a roughly 7% cash balance to avoid selling at extremely depressed prices. It's too bad, because Whitman and his portfolio-management successor Ian Lapey love to buy the market's unloved companies. Picking up stocks on the cheap, including firms involved in bankruptcy situations, has been one of the hallmarks of Whitman's long-term success with this fund. Even with the recent challenges, current investors should stay put to avoid selling at great losses, and other long-term investors should consider this fund now.
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Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.