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Four Fine All-in-One Foreign-Stock Funds

These funds provide exceptionally broad international exposure in one package.

William Samuel Rocco, Senior Fund Analyst, 06/28/2011

The universe of open-end international-stock funds contains a growing number of really specialized offerings. Indeed, though the Brazilian, Chinese, and Indian markets have been beset by worries about slowing growth, rising inflation, and other issues in 2011--and posted  disappointing results--one Brazil fund, four China-region offerings, and five India funds have opened since Jan. 1.

Such launches are part of a trend. Many other Brazil, China, and India funds have opened in recent years, along with some offerings that focus on other developing markets such as Korea or Russia and several regional small-cap funds. There now are 50 single-country emerging-markets funds and 15 regional small-cap offerings, plus various other funds with very narrow purviews focused on emerging markets. These include Brazil, Russia, India, and China (BRIC) funds and Europe, Middle East, and Africa (EMEA) offerings in the open-end universe. There also are dozens of exchange-traded funds that are focused on specific countries or regions in the emerging-markets realm.

Though these very narrow funds get lots of attention from the media, most individual investors can safely ignore them. They can get considerable geographic, market-cap and overall breadth in a three-fund portfolio composed of complementary foreign large-cap, diversified emerging-markets and small/mid-cap offerings. Even a two-fund portfolio can provide broad foreign-stock diversification, as long as the funds are chosen carefully.

Meanwhile, investors who prefer to own just one international fund don't necessarily have to miss out. There are a good number of foreign large-cap funds that pay significant attention to both emerging-markets stocks and smaller companies. Several of these exceptionally wide-ranging funds are topnotch offerings, as explained below.

HighMark International Opportunities HIOMX
There's a quant-oriented top-down approach behind this foreign large-blend fund's breadth. Its managers begin by establishing the portfolio's country allocations based on a set of models that incorporate various momentum, value, and risk factors; and they then select stocks based on a similar set of models, favoring those that rank in the top 20% while striving to own a healthy number of names in each market and to consider more than the usual suspects. The end result is one of the more-diversified portfolios in the international-stock universe. This fund typically invests 15% to 20% of its assets in emerging-markets stocks, devotes a similar amount to smaller-cap stocks, and owns 250 to 350 names.

The managers have executed this strategy well over the years, and this fund has earned good five-, 10-, and 15-year returns with relatively average volatility. And it bodes well for the future that the managers regularly adjust the weightings of the variables in their models based on market conditions and that they constantly look for ways to enhance their approach.

Janus Overseas JAOSX
Brent Lynn has guided this foreign large-growth fund to stellar returns since taking the helm at the start of 2001. Thanks to the terrific gains he has delivered in the various rallies of the 2000s, this fund has posted a 7.5% annualized return on his watch. That result ranks second-best among foreign large-growth offerings and places in the top 5% among all foreign large-cap funds.

Not surprisingly, Lynn has used a pretty adventurous strategy to produce those results. For starters, he readily considers midsize firms if they are growing fast and have the high returns on capital and other traits he seeks, so this fund's average market cap is usually well below the foreign large-growth median. What's more, he's not the least bit shy about loading up on stocks in the developing world as long as they meet his criteria. This fund currently has a 33% stake in emerging markets overall, which includes a 15% position in India. Of course, such aggressive positioning comes with real perils, but the long-term rewards are well worth the risk here.

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