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Fund Spy

Focused Foreign Funds Are in an Exclusive Club

Downside performance is generally not their forte, but some focused funds keep volatility in check.

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Just over one third of actively managed domestic core funds held fewer than 50 stocks recently. And it's not uncommon to see 40% to 50% of assets residing in the top 10 holdings in these portfolios. But it's not so easy to find such concentration in international-equity portfolios.

Only about 6% of the 399 foreign large-cap strategies held fewer than 50 stocks at last count. What's more, the median number of holdings for foreign large-cap funds clocked in at 115; that's 51% more stocks than are typically found in a domestic-stock fund. As far as foreign core funds go, it's fair to say that even those with holdings in the 50 to 70 range are on the concentrated side.

Risk and Reward
Some investors are more concerned about volatility in their international funds due to currency risk, emerging-markets exposure, or other factors. So less-volatile foreign funds are all the more appealing. Should investors therefore ignore the more-focused options for those that spread risk over hundreds of smaller positions?

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