They have what it takes to make the most of the opportunities.
International-stock funds have had a particularly terrible time of it in 2008. For starters, currency, valuation, and other factors have caused foreign-stock funds to suffer significantly more than their domestic-equity counterparts as markets around the world have tanked this year. Foreign large-growth funds have lost 8 percentage points more than the domestic large-growth norm of 42% for the year to date through Nov. 28, for example, while foreign small/mid-value funds have lost 15 percentage points more than the 36% decline suffered by small-value funds that generally stick to the United States.
What's more, emerging-markets funds have lost even more than those that focus on developed exchanges as a variety of local problems have surfaced in the developing world and investors have fled to quality. Commodity prices, which are crucial to many developing countries' economies, have tanked. Diversified emerging-markets funds have plunged 58% for the year to date through Nov. 28. Pacific Asia ex-Japan offerings have fallen around the same amount, and Latin America funds have declined a little more.
These losses are incredibly painful, but the global meltdown has also created some outstanding investment opportunities. Indeed, the damage has been so widespread and so severe that many stocks with solid fundamentals and good prospects have gotten crushed along with all those with genuine weaknesses and poor potential. This means that there are lots of exceptional long-term investments spread around the world at present.
Most international-stock managers lack either the talents or wide-ranging approaches necessary to take advantage of these far-flung opportunities. And many of those who have the right skills and the right strategies don't have the resources to do significant buying these days, as their funds have been beset by redemptions and thus have little if any cash to deploy. But the team at AIM International Growth, Rudolph-Riad Younes and Richard Pell of Artio International Equity II, and Amit Wadhwaney of Third Avenue International Value have the talents, approaches, and--at least as of quite recently--the cash to take advantage of this year's global sell-off.
AIM International Growth
Artio International Equity II
Third Avenue International Value
We have lots of confidence in these managers and their funds. But the funds certainly are not risk-free. Their year-to-date losses, though moderate in relative terms, are quite big in absolute terms, and they could well decline further before they enjoy a sustained rally, Thus, while we expect these funds to capitalize on this year's global sell-off and to post superior results over time, interested investors should be sure to approach them with their eyes wide open and take a long-term view. Finally, if they're shopping for taxable accounts, such investors should also note that it is distribution season and that each of these funds is expected to make a tiny income or capital gains distribution later this year.