These funds should deliver solid long-term results with modest volatility.
When looking back on an extraordinary year for global investors, one fact is impossible to miss: Aggressive foreign funds have handily outpaced more-reserved ones. Emerging-markets funds have gained more than 65%, and the two foreign small/mid-cap categories are in the 42% to 46% range for the year to date through Dec. 18, 2009. By contrast, foreign large-cap and world-stock funds have gained a more pedestrian, though still impressive, 28% to 35% this year.
As could be expected, the core international funds that pay lots of attention to emerging-markets or small-cap issues have left most of their category peers in the dust in 2009. Masters' Select International
Such results might lead some investors to conclude that bold core international funds are preferable to tame ones. That's not necessarily the case. Daring foreign large-cap and world-stock funds tend to suffer oversized losses in sell-offs and considerable volatility overall. While Masters' Select International, Janus Overseas, and some other core international funds that delve fairly substantially into emerging-markets or small-cap issues have overcome the risks of such holdings and earned strong results over time, many such funds have not. And even the best of these bolder funds can be challenging to stick with because of their ups and downs.
For more conservative investors, moderate foreign large-cap and world-stock funds are a more appropriate choice. They tend to hold up reasonably well in downturns and experience limited volatility overall. Although many such funds are simply too reserved and have posted uninspiring long-term records, some are attractive and have earned strong risk/reward profiles over time. There are several prominent core international funds that fall in the latter camp, including Scout International
We thought it would worthwhile to provide introductions to three offerings from the foreign large-cap and world-stock groups that have delivered the goods with moderate strategies, yet still have a modest amount of assets.
Sentinel International Equity
MFS Global Equity
Harding Loevner International Equity
These funds are more reserved than most of their category peers and have good long-term prospects as well as other attributes. But they certainly aren't risk-free or immune to losses in tough times. And the huge gains that all types of international-stock funds have posted in the rally that began in March of this year aren't close to being sustainable. Thus, interested investors should make sure that they have realistic short-term expectations and long time horizons before they climb aboard any of these vehicles.
William Samuel Rocco is a senior fund analyst at Morningstar.
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