You may be surprised to learn that these U.S. stock funds have investments in India.
This article originally appeared in Morningstar FundInvestor, an award-winning newsletter that presents investment strategies and tracks 500 funds.
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We're noticing some surprising domestic-stock funds with stakes in India. The rapid economic growth has been broadbased, with increased demand for consumer goods from a growing middle-class population, a rising high-tech industry, and focus on improving the country's infrastructure driving a more than 9% economic expansion for the past two years and eye-popping stock market gains of more than 47%.
The handful of U.S. funds with India stakes have benefited from their bet but that could work the other way, too. In fact, there are early signs of problems as a number of recent IPOs in India have been cancelled due to weak demand. So far in 2008, the Indian market is down about 24%.
This fund's 16% stake in India stocks is one of the highest for any fund in a domestic-fund category. Manager David Decker has used the fund's flexibility to invest overseas with aplomb in recent years--its annualized three- and five-year returns of more than 20% place it at the top of the large-blend category. Top picks such as ICICI Bank
This mid-growth fund also has a 16% stake in India stocks. Atypical allocations are nothing new for this fund, however, as the management team led by longtime skippers Hans Utsch and Larry Auriana will let cash build and readily scoop up overseas names (27% of its most recent portfolio). The cash stake has prevented the India stake from hurting performance too badly this year. The Indian market is off about 24% for the year to date, but Federated Kaufmann is off 10%. This wide-ranging portfolio has 19 stocks from India, including Housing Development Finance and DLF Limited, so when India has problems, the fund will have problems.
T. Rowe Price Media and Telecom
Manager Henry Ellenbogen has continued this fund's success since taking over for veteran manager Rob Gensler (now at sibling Global Stock) in April 2005. Its 18% annualized gain for the past three years through mid-March is near the top of the specialty-communications category. The fund's 5% stake in India is concentrated on telecom service provider Bharti Airtel (4% of assets). Concentration is nothing new for this fund, but we like that its top-heavy profile is offset with broad sector and global exposure. The fund portfolio includes media and gaming stocks and willingly invests overseas. Ellenbogen's execution has generally been spot-on, but we'd still use this Analyst Pick in small doses.
Investing in India stocks isn't the only way this Analyst Pick stands apart from its specialty-financial peers. Veteran manager Ken Feinberg and newer comanager Charles Cavanaugh also own a handful of nonfinancial stocks such as Sealed Air
Andrew Gogerty is a mutual-fund analyst with Morningstar.
Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.