These world-stock funds still have long-term appeal.
Equity funds have had absolutely nowhere to hide over the past 16 months. The U.S. stock market has plunged 50% since October 2007, as a burst housing bubble, the worsening credit crisis, and a deepening recession have taken a steep toll. Most overseas equity exchanges have plummeted somewhat more than that in dollar terms during the period. They have been plagued by similar problems as the U.S. and the weaknesses of their currencies have made matters worse. Therefore, it comes as no surprise that the typical world-stock offering is down an excruciating 53% since Nov. 1, 2007.
As would be expected, several fine world-stock funds have lost significantly less than that. Mutual Discovery TEDIX and Mutual Qualified TEQIX have both declined a relatively limited 31%, for example, buoyed by management's decision to build sizable cash stakes as well as the resiliency of some of its tobacco and other consumer-staples holdings. And Tweedy, Browne Worldwide High Dividend Yield Value TBHDX has fallen 12 percentage points less than the category average, helped by the conservative nature of its holdings.
Many good global funds have suffered much more damage than the group norm during the worldwide equity meltdown, though. Here we examine three such funds, T. Rowe Price Global Stock PRGSX, Thornburg Global Opportunities THOAX, and Dodge & Cox Global DODWX, to figure out why they have performed so poorly and whether they remain strong long-term investments.
T. Rowe Price Global Stock PRGSX
A number of things have gone wrong for this fund over the past 16 months. First, it has been more fully invested than most of its rivals. Second, and more importantly, Rob Gensler has maintained one of the largest emerging-markets stakes in the category--the fund had around 30% of its assets invested in the developing world during most of 2008-- and emerging-markets stocks have suffered far more damage than developed-markets issues. And third, Gensler has made some errant picks. This fund has plunged 61% since Nov. 1, 2007, as a result. That's an awful loss--and it will take years for the fund to recover--but there still are ample grounds for optimism here. Gensler earned terrific gains during his first few years at this fund, and he produced excellent results during his tenures at T. Rowe Price Media & Telecom PRMTX and T. Rowe Price Global Technology PRGTX, so he clearly has a lot of talent. The go-anywhere growth strategy he employs is inherently sound and distinguishes this fund from its rivals. And its relatively low expense ratio gives it an enduring edge. Thus, while this fund is too bold for the faint of heart, we think it remains a good long-term option for bold investors.PAGEBREAK
Thornburg Global Opportunities THOAX
The perils of this young fund's atypical approach have been painfully clear over the past 16 months. Brian McMahon and Vinson Walden's willingness to buy stock in bunches has stung, as it has left this fund with lots of exposure to the weak Chinese market and no exposure to the relatively steady consumer-staples sector. Their taste for small firms has hurt, because large-cap stocks have held up better than smaller-cap names in the United States and abroad. And their commitment to focusing on 30-40 issues has caused additional damage, as that makes nearly every holding significant: Dell DELL and some of their other top picks have suffered oversized losses. Thus, this fund has lost 8 percentage points more than the world-stock norm of 53% since Nov. 1, 2007. That's incredibly painful for shareholders, of course, but this fund posted impressive gains as stocks surged around the world during the managers' first 15 months, and its since-inception returns are quite strong in relative terms. The fact that McMahon has posted good long-term results as a comanager at Thornburg Investment Income Builder TIBAX is another plus, as is the fact that Thornburg is a quality shop. In short, we continue to like this fund's long-term prospects and to believe that it remains a fine choice for investors who want--and can handle the risks of--a distinctive global offering.
Dodge & Cox Global Stock DODWX
This fund opened in May 2008, so it missed the first several months of the worldwide equity sell-off, but it has suffered mightily nonetheless. Its managers piled into already beaten-up financials last spring, thinking fears about several banks and insurers were exaggerated. But things have gone from bad to worse for that sector since then, and a number of the managers' top choices have been among the worst performers. In other sectors, they also made poor picks, such as General Electric GE, which was this fund's number-five holding as of Dec. 31, 2008. And they've gone quite light on the relatively resilient consumer-staples area. Consequently, this fund has plummeted 58% during its 10-month existence, whereas the typical world-stock offering has fallen 48%. That's a truly discouraging start. But this fund's management team is exceptionally deep and experienced. Several members of the team are part of the squads that have earned impressive long-term results at Dodge & Cox Stock DODGX and Dodge & Cox International Stock DODFX. And the same sound value strategy is used at all three offerings, an approach that normally leads to portfolios that are distinctive without being extreme. Therefore, we still think that shareholders in this fund are likely to be well rewarded over the long run.
William Samuel Rocco is a fund analyst with Morningstar.
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