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Wise Up. Send Your Money Abroad.Navigation: Main page Author: Wang, Penelope pwang@moneymail.com Section: fund watch
Yes, overseas markets are up big, but chances are you still haven't bought enough of the world Where can you earn the biggest returns right now? Anywhere but here, apparently. For the fourth year in a row, international stock funds outperformed domestic ones in 2005, with an average gain of 17.5% vs. 6.9%. That triggered the predictable stampede of performance-chasing investors. Some $155 billion cascaded into foreign and global stock funds last year, 40% more than in 2004 (itself a record year). That's 75% more cash than went into U.S. equity funds. Ordinarily, when I see those kinds of hot money inflows, I recommend investing just about anywhere else. Fact is, though, most of us don't have enough money in foreign stocks, so we maybe doing the right thing for the wrong reasons. "It's always a mistake to chase after a hot market," says Gregg Wolper, a senior analyst with Morningstar. "But it's important to own international funds." If you've been jumping in and out of foreign funds--or avoiding them altogether--it's time you understood the real reason to invest abroad: Done sensibly, it makes your portfolio safer and boosts your long-term returns. Here's why. The Zig and Zag of ItForeign markets don't move in lockstep with U.S. exchanges. True, developed markets move in the same general direction as U.S. stocks, since big companies here and abroad play on a global scale. But returns vary widely, as the past few years have shown. And emerging markets in Latin America and Asia often move in the opposite direction from the U.S. In addition, international funds let you invest in a currency other than the dollar. When the greenback is weak, as it was in 2004, you get a boost when your foreign fund's returns are converted into dollars. Of course, when the buck strengthens, as it has lately, you lose a little in translation. Toyota vs. GMForeign stocks also improve your chances of earning strong returns. "Many of the most innovative companies are internationally based," says Morningstar's Wolper. "That includes most of the leading cellular-phone makers and the best-performing auto companies." Moreover, markets such as Brazil and China are growing faster than the U.S. Given all that, financial advisers typically recommend that you keep 25% to 35% of your equity portfolio in foreign stocks. Here are three tips for getting the most out of your world travels. > TAKE YOUR SEASICKNESS PILLS Japanese stocks slid 7% during three days in January, when an investigation into an Internet company spooked investors. Developing markets are especially risky-it's not uncommon for them to lose 20% in a quarter. If you're cautious, you may do best with an allocation of less than 20% to foreign stocks, while bolder investors may be able to handle 35% or more. > BUY BIG The bulk of your foreign stake should be stashed in large-company funds, which will bounce around less than small-cap or midcap funds. Two top choices: Vanguard International Growth (VWIGX) or Oakmark International (OAKIX), both MONEY 65 funds. As in the U.S., blue chips have lagged smaller stocks lately around the world. But that's all the more reason to make sure you own them now. "The most undervalued stocks today are large-caps," says David Herro, manager of Oakmark International. If you have more taste for risk, put another 5% into a small-cap or emerging markets fund such as the MONEY 65's T. Rowe Price International Discovery (PRIDX) or SSgA Emerging Markets (SSEMX). > DON'T GO NATIVE If you've owned emerging markets or foreign small-cap funds lately, your investment has grown way beyond your initial allocation. Avoid the temptation to keep piling in. Move some of your overseas stash into laggards like your big-cap U.S. funds. You'll end up selling high and buying low--a winning strategy anywhere in the world. FEEDBACK: pwang@moneymail.com Staying Too Close to HomeWhile money has been flowing into foreign-stock funds, the typical 401(k) investor doesn't have enough invested abroad. MONEY GOING INTO FOREIGN FUNDS (BILLIONS) '00 $60 '01 -$22 '02 $1 '03 $40 '04 $106 '05 $155 TYPICAL 401(k) ASSET MIX International, emerging mkts. 6% Stable value 22% Bonds, cash 5% Other 2% Company stock 23% Domestic equities 29% Asset-allocation funds 13% NOTE: Net new flows into international and global equity/balanced funds. SOURCES: Strategic Insight; December 2005 Hewitt 401(k) index Money 65OUR LIST OF RECOMMENDED MUTUAL FUNDSForeign funds posted solid returns this month, outperforming all other categories with an average gain of 4.4%. Among the MONEY 65, the riskier international funds fared best: SSgA Emerging Markets, one of the lowest-priced options among actively managed emerging markets funds, was up 10.8%, and T. Rowe Price International Discovery, which invests in small, fast-growing companies, gained 7.6%. Legend for chart: A - FUND (TICKER) B - TOTAL RETURN 1 MO. C - TOTAL RETURN 1 YR. D - TOTAL RETURN 3 YRS.[1] E - EXPENSES[2] (AS % OF ASSETS) F - PHONE NUMBER (800) A B C D E F Large-Cap --------- American Funds Amcap (AMCPX) 1.5% 12.4% 14.5% 0.68 421-0180 Am. Funds Am. Mutual (AMRMX) 1.2 9.8 12.6 0.60 421-0180 Fidelity Dividend Growth (FDGFX) 2.1 9.8 9.9 0.67 343-3548 Fidelity Spartan 500 (FSMKX) 1.3 11.2 14.0 0.10 343-3548 Fidelity Spartan Total Market (FSTMX) 1.8 13.8 16.1 0.10 343-3548 iShares S&P 500 (IVV) 1.3 11.2 14.0 0.09 474-2737 Jensen (JENSX) -0.9 1.3 6.6 0.85 992-4144 Matrix Advisors Value (MAVFX) 2.6 8.1 14.1 0.99 366-6223 Mosaic Investors (MINVX) 1.2 2.4 9.5 0.89 368-3195 Selected American (SLASX) 1.9 15.8 17.3 0.93 243-1575 Sound Shore (SSHFX) 1.6 13.3 17.4 0.98 551-1980 T. Rowe Price B/C Growth (TRBCX) 1.1 12.8 14.2 0.87 638-5660 T. Rowe Price Equity Income (PRFDX) 1.2 9.8 14.3 0.73 638-5660 Vanguard 500 (VFINX) 1.3 11.1 14.0 0.18 531-4999 Vanguard Total Stock Mkt. (VTSMX) 1.8 13.3 16.1 0.19 851-4999 Vanguard Tot. Stk. Mkt. VIPRs (VTI) 1.8 13.4 16.1 0.12 851-4999 Vanguard Windsor II (VWNFX) 1.7 12.2 17.6 0.36 851-4999 Midcap ------ ABN AMRO Mid Cap (CHTTX) 3.0 11.1 18.8 1.29 992-8151 FAM Value (FAMVX) 1.0 10.5 15.8 1.20 932-3271 Fidelity Value (FDVLX) 3.4 22.7 23.6 0.93 343-3548 Janus Mid Cap Value (JMCVX) 1.9 17.8 22.2 0.94 525-3713 Meridian Growth (MERDX) 1.4 8.0 19.4 0.86 446-6662 Meridian Value (MVALX) 3.0 10.8 17.3 1.08 446-6662 Muhlenkamp (MUHLX) 3.0 15.2 25.8 1.13 860-3863 Vanguard Mid-Cap (VIMSX) 3.2 23.4 23.4 0.22 851-4999 Vanguard Mid-Cap VIPRs (VO) 3.2 23.5 N.A. 0.17 851-4999 Small-Cap --------- Neuberger Berman Fasciano (NBFSX) 1.7 10.2 15.1 1.20 877-9700 Royce Opportunity (RYPNX) 4.7 17.5 28.6 1.14 221-4268 Royce Pa. Mutual (PENNX) 2.9 22.0 24.6 0.89 221-4268 Third Avenue Small-Cap Val. (TASCX) 0.9 16.8 22.9 1.14 443-1021 Vanguard Explorer (VEXPX) 3.8 20.4 22.2 0.56 851-4999 Vanguard Small-Cap (NAESX) 3.1 18.9 23.9 0.23 851-4999 Vanguard Small-Cap VIPRs (VB) 3.2 19.0 N.A. 0.17 851-4999 Speciality ---------- Cohen & Steers Realty (CSRSX) 5.3 30.3 33.8 1.01 437-9912 iShares Dow Jones Select Div. (DVY) 0.4 9.3 N.A. 0.40 474-2737 iShares Goldman Sachs Nat. Res. (IGE) 3.3 45.8 33.2 0.50 474-2737 T. Rowe Price New Era (PRNEX) 4.1 40.5 33.3 0.68 638-5660 Vanguard REIT (VGSIX) 5.2 27.1 29.2 0.21 851-4999 Vanguard REIT VIPRs (VNQ) 5.2 27.2 N.A. 0.18 851-4999 Foreign ------- Am. Funds EuroPacific Gr. (AEPGX) 6.3 30.0 25.3 0.82 421-0180 Artisan International (ARTIX) 5.7 25.1 22.7 1.22 344-1770 Dodge & Cox Intl. Stock (DODFX) 5.7 25.2 32.4 0.77 621-3979 Fidelity Spartan International (FSIIX) 5.4 21.5 24.2 0.10[3] 343-3548 iShares MSCI EAFE (EFA) 5.8 21.8 24.6 0.35 474-2737 Oakmark International (OAKIX) 4.8 21.5 24.0 1.21 625-6275 SSgA Emerging Markets (SSEMX) 10.8 53.1 40.0 1.25 997-7327 T. Rowe Price Intl. Discovery (PRIDX) 7.6 36.1 39.7 1.31 638-5660 Vanguard Em. Markets Stock (VEIEX) 9.7 46.4 38.9 0.48 851-4999 Vanguard Em. Mkts. VIPRs (VWO) 9.7 N.A. N.A. 0.30 851-4999 Vanguard Intl. Growth (VWIGX) 6.0 23.4 23.5 0.61 851-4999 Vanguard Total Intl. Stock (VGTSX) 6.2 24.3 26.2 0.31 851-4999 Bond ---- American Century Intl. Bd. (BEGBX) 1.4 -5.0 8.0 0.84 345-2021 American Funds Amer. H/I (AHITX) 1.2 5.0 12.9 0.67 421-0180 Dodge & Cox Income (DODIX) 0.6 2.3 4.1 0.44 621-3979 FPA New Income (FPNIX) 0.4 1.8 4.0 0.60 982-4372 Harbor Bond (HABDX) 1.0 3.0 4.6 0.58 422-1050 iShares Lehman 1-3 Yr. Treas. (SHY) 0.3 1.8 1.6 0.15 474-2737 iShares Lehman TIPS Bond (TIP) 0.8 2.8 N.A. 0.20 474-2737 iShares Lehman U.S. Agg. Bd. (AGG) 0.7 2.1 N.A. 0.20 474-2737 Vanguard Infl.-Pro. Sec. (VIPSX) 0.8 2.8 6.5 0.17 851-4999 Vanguard Intm.-Term T/E (VWITX) 0.8 2.2 3.6 0.14 851-4999 Vanguard Short-Term Bond (VBISX) 0.4 1.6 2.3 0.18 851-4999 Vanguard Total Bond Mkt. (VBMFX) 0.8 2.2 3.8 0.20 851-4999 Target-Retirement ----------------- T. Rowe Price Retirement (STOCK/BOND ALLOCATION) -- -- -- -- 638-5660 2005 Fund (58%/42%) (TRRFX) -- 2.0 9.6 N.A. 0.64 2020 Fund (79%/21%) (TRRBX) 2.5 12.3 15.7 0.76 -- Vanguard Target Retirement -- -- -- -- 851-4999 2025 Fund (58%/42%) (VTTVX) 2.0 9.2 N.A. 0.20 -- 2035 Fund (76%/24%) (VTTHX) 2.5 11.3 N.A. 0.21 -- NOTES: As of Jan. 19. N.A.: Not available. 1 Annualized. 2 Audited and annualized figures except on Fidelity. 3 Includes a waiver. SOURCES: Lipper, New York, 877-955-4773; the fund companies. GRAPH: MONEY GOING INTO FOREIGN FUNDS GRAPH: TYPICAL 401(k) ASSET MIX PHOTO (COLOR) ~~~~~~~~ By Penelope Wang, pwang@moneymail.com in the Fair Use guidelines of the 1976 U.S. Copyright Act. info [at] singlearticles.com Powered by CommonSense |
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