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The Universe of World-Stock Funds Continues to Improve

Two young global funds we like; two pending global funds with a lot of promise.

William Samuel Rocco, 04/22/2008

World-stock funds have considerable inherent allure. Thanks to their global purviews, world-stock managers can pursue the best opportunities wherever they are located; that geographic freedom is quite attractive because the top investments are normally scattered around the globe and where those stocks are located frequently changes over time. Moreover, there are many good managers from proven shops that have delivered good long-term results running world-stock funds, and those managers employ a diverse mix of strategies. (For example, while one of our four Fund Analyst Picks in the world-stock category uses a strict all-cap value discipline and another one relies on a patient and price-conscious blue-chip approach, the other two follow two different--and distinctive--growth strategies.) Thus, it comes as no surprise that there has been long-standing interest in these funds.

Meanwhile, several global funds with good pedigrees and other attributes have been launched in recent years, so world-stock fans have a greater number of good options than they did before. In fact, as we pointed out in a late-2006 column, Harbor, Oakmark, and Thornburg all introduced promising world-stock offerings that year. And, Calamos Global Equity CAGEX and Marsico Global MGLBX, which have more than their share of strengths, opened early last year.

What's more, the stream of new, high-quality world-stock funds hasn't let up in recent months. The well-respected value boutique Tweedy, Browne opened a new global fund last September. The successful growth shop William Blair did the same a few weeks later. Industry leader Dodge and Cox recently announced that it will be opening its first global fund soon. And the low-cost powerhouse Vanguard just revealed that it will be launching a new world-stock index fund in the coming weeks. We think that all four of these funds have lots of potential. Here are the details on each.

Tweedy, Browne Worldwide High Dividend Yield Value TBHDX
This fund is managed by the same seasoned and skilled team that runs Tweedy, Browne Global Value TBGVX and Tweedy, Browne Value TWEBX. Here, as on its other two charges, the team is focusing on cheap securities, taking a very long-term view, and striving to minimize risks to avoid losing money. The team is doing a few things a bit differently on this fund. It's focusing on fewer stocks here, for example, and it's leaving its foreign currency exposure unhedged on this fund while it hedges most of its foreign currency exposure on Global Value. But due to our confidence in the team and the shared family traits, we expect this fund to have the same attributes as its siblings. This means that it should post attractive long-term returns--despite tending to lag during strong and prolonged rallies--while suffering less overall volatility than the vast majority of its category peers and generally holding up well during downturns. Our overall confidence in Tweedy, Browne as a firm is another plus.

William Blair Global Growth WGFIX
George Greig, who manages this fund, has delivered excellent long-term returns at William Blair International Growth WBIGX. He has achieved that feat with a wide-ranging and adventurous growth strategy, and he is taking a similar tack here. As a result, this fund will usually have bigger emerging-markets and mid-cap stakes than the typical world-stock offering, and its roster of names will include offbeat growth stocks as well as conventional ones. Greig's penchant for venturing outside the mainstream is likely to cause problems for this fund at times just like it has for William Blair International Growth. But his long-term record of success at that fund makes us bullish about this fund's long-term prospects. The fact that Greig spent roughly 12 years as a domestic-equity analyst and manager early in his career increases our optimism, as does the overall quality of William Blair's growth-fund lineup and resources.

Dodge & Cox Global Stock
There are several reasons to welcome the arrival of this fund, which is slated to open in the next few weeks. Dodge & Cox is a topnotch money manager that treats its fundholders exceptionally well. The four other offerings in the family lineup rank among the very best in their categories. This fund will be run by a six-person team of Dodge & Cox veterans who have a considerable amount of domestic, foreign, and other investment experience. And the value-oriented stock-selection discipline that the team will be using here is the same as the one that produced terrific long-term results at Dodge & Cox Stock DODGX and International Stock DODFX. All this, plus the fact that this fund will have a low 0.90% expense ratio, makes us think that the future is bright here.

Vanguard Global Stock Index
This fund, which will open later this spring, has the makings of a good long-term global play. For starters, it will be tracking the FTSE All-World Index--which consists of approximately 2,800 mid-caps and large caps from four dozen countries--so it will provide exceptionally broad exposure to stocks around the globe. What's more, it's expected to have an expense ratio of 0.45%. That's 75 basis points (or hundredths of a percentage point) cheaper than the typical no-load world-stock offering, giving this fund a sizable and enduring advantage over its rivals. And those attractions, plus Vanguard's indexing prowess and overall commitment to fundholders, make us think that this fund has good long-term prospects. (ETF fans who share our optimism should note that Vanguard is also launching an exchange-traded version.)

William Samuel Rocco is a fund analyst with Morningstar.

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