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Fund Spy

Don't Ignore Global Funds When Picking Your Core Equity Holding

These two global blue-chip funds make good portfolio centerpieces.

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World-stock funds haven't really caught with investors as core equity holdings. Overall, the world-stock category has roughly $270 billion in assets at present, whereas the three domestic large-cap groups have between $500 billion and $925 billion in assets each, and the foreign large-blend category has almost $370 billion in assets.

There are some logical explanations for the relatively limited popularity of world-stock funds. Most of them pay lots of attention to blue chips based in the U.S. and large companies headquartered overseas and thus are inappropriate for investors who already own a mainstream domestic large-cap fund or a traditional foreign large-cap fund because of portfolio-overlap issues. Global large-cap offerings tend to have significantly higher expense ratios than their U.S. and foreign rivals. And more than a few world-stock offerings are run by managers that have far more domestic expertise than international knowledge--or vice versa--and some of them employ strategies that make them too bold to serve as good core equity holdings.

But investors who are just starting out--or who don't already own a mainstream domestic large-cap fund or a traditional foreign large-cap fund--needn't worry about portfolio-overlap issues. There are more than 200 funds in the world-stock category, and a number of them are attractively priced, are in the hands of managers with global skill sets, and follow strategies well-suited to core holdings.

William Samuel Rocco does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.