Find Wide-Ranging Core Holdings Here
These funds are better positioned to find overseas winners than their peers.
As we discussed in a Five-Star Investor column on Aug. 19, many fund managers and other observers of the stock market and the economy believe we're in for at least several years of restrained economic growth following an upturn from a deep recession. That scenario could be troublesome for economically sensitive companies, which have soared as stocks have rallied and investors have become more optimistic about the economy.
Also, given the devastation wreaked by the financial crisis in the U.S., growth could be particularly stunted here. Another concern is the massive government spending programs implemented in an attempt to get the country out of the crisis. As some have argued, the mountain of debt could result in a decline in the U.S. dollar against many foreign currencies. Thus, foreign economies could perform better, and companies based outside the U.S. could deliver stronger returns--which would be amplified when they're translated into U.S. dollars if the dollar drops.
Owning bigger stakes in foreign-stock funds is one way to benefit if the U.S. economy lags others. Another is to own funds run by managers who focus on U.S. stocks, yet possess (and use) the flexibility to invest a significant chunk of their assets in foreign companies. The latter strategy is arguably preferable, because managers have a larger set of potential investments to choose from (and there's no guarantee that foreign markets will lead the way).
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.