Core Foreign Funds That Aren't Betting Big on Europe
These funds can't be accused of hugging the index.
Managers of core foreign funds face an interesting choice these days. Europe has been beset by government debt woes; while Greece may be in the worst shape, others countries in the region are struggling, as well. Furthermore, many observers were already predicting very sluggish economic growth for the continent before the debt crisis deepened. And yet Europe is a huge part (60%) of the MSCI EAFE Index, the benchmark for most core foreign funds. Many skippers may find it difficult to choose between the risks of investing the lion's share of their portfolios in Europe-based firms and deviating significantly from the index. Doing the latter can, at many shops, mean taking on career risk for these managers if their moves backfire.
We set out to identify managers of large-cap foreign funds who are treading relatively lightly in Europe and have been successful in the past while not aping the index or their peers. Using the Premium Fund Screener tool on Morningstar.com, we searched for distinct funds within the foreign large-blend, foreign large-growth, and foreign large-value categories that are open to new investors, covered by Morningstar's fund analysts and can be purchased with an initial outlay of $10,000 or less. We also set the screens to home in on funds with a smaller Europe weighting than the MSCI EAFE's 60% and whose returns have been relatively less correlated to the index. For the latter measure, we wanted funds that had R squareds (a measure of correlation) of less than 94 over the trailing three years. That figure still looks fairly high on a long-term basis, but correlations have been especially tight over the past three years--setting the bar at lower than 94 eliminates more than 80% of all foreign large-cap funds. Finally, we searched for funds where the managers have been on board for at least five years that have beaten out 75% of their category rivals over that span, and have lower expense ratios than their typical peers.
Here are the results as of June 14, 2010. Click here to run the screen yourself.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.