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Solid Foreign Equity Fund Choices

Their 2009 gains look so-so, but most investors should stick with core funds.

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Once again, the narrowly focused Latin America and diversified emerging-markets stock categories are chart-toppers among foreign equity funds. These categories have averaged gains north of 50% for the year to date ended Aug. 28, 2009, which is more than double the average result for foreign large-cap funds. Of course, most remember that these funds suffered some of the deepest losses in 2008 (the Latin American and diversified emerging-markets stock categories averaged losses of 59% and 54%, respectively). Most of us are better-served over the long haul with regionally diversified foreign funds, which are less volatile and often provide a bit of exposure to emerging-markets stocks.

Aside from perusing our Analyst Picks, the simple screen described next can also point to good funds that may be flying under your radar. First, we zeroed in on all foreign large-cap options with top-quartile 10-year trailing records and managers with at least 10 years of experience running the funds. Next, we included three more basic criteria: 1) below-average expenses, 2) investment minimums of $10,000 or less, and 3) open to new investment.

As of Aug. 31, 2009, the Premium Screener pulled these funds:

 American Funds EuroPacific Growth (AEPGX)
 Artisan International (ARTIX)
 DFA International Value (DFIVX)
 Oppenheimer International Growth (OIGAX)
 Scout International (UMBWX)
 William Blair International Growth (WBIGX)

To run the screen yourself, click  here.

Of the funds that made this cut,  Scout International's (UMBWX) 24% gain for the first eight months of the year was the most subdued. Manager James Moffett has run this fund using the same approach that he's employed since 1993: keeping small position sizes to limit the effects of individual stock gyrations, avoiding countries that he views as politically risky, such as Russia and China, and hunting for bargains among lesser-known small- and mid-cap fare. And because Moffett has the leeway to hold cash (the fund held a 15% stake in January 2009), this foreign large-blend fund lost less than most peers last year. Over the long term, these more-cautious aspects of Moffett's strategy have helped give the fund a very attractive risk/reward profile.

By comparison,  DFA International Value (DFIVX) has offered its fundholders a wilder ride lately. The foreign large-value offering bounced back by 92% since March 9, 2009, putting it up 34% for the first eight months of the year. This fund is run with a quantitative strategy that spreads risk over hundreds of holdings. It focuses on small-cap and value-leaning stocks because the firm's research suggests that these two factors bag the most consistent long-term performance. Investors looking for some emerging-markets exposure wouldn't find this fund appealing--its passive strategy focuses on firms from more than 20 developed countries. Otherwise, its seasoned management team and strong long-term record argue in its favor.

 William Blair International Growth (WBIGX), a foreign large-growth fund, reopened its doors to new investors in November 2008. This move came at a difficult time--the fund posted a peer-trailing 52% loss last year. But the fund has shot up 58% since the last market bottom. This helped push its 29% gain for the year to date ended Aug. 28, 2009, ahead of two thirds of its rivals. Longtime manager George Greig tends to own more small-cap and emerging-markets stocks than his typical peer, making this a great stand-alone option. More importantly, Greig's focus on low-debt firms with good growth prospects, as well as overall strong stock-picking, have steered this fund well through a variety of market conditions.

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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.