Most of the good ones are closed--but not all.
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No doubt about it, foreign small-cap funds have had an amazing run. A global small-cap rally and a falling dollar have led to outstanding returns for foreign small-cap funds, and that has spurred many to close the doors to new investors. In fact, all of our foreign small/mid-value and foreign small/mid-growth Fund Analyst Picks are closed.
As a result, I'm fielding a lot of questions about where one can turn for a good foreign small-cap fund. I've come up with a few ideas, but first I have to share a big caveat. Whenever an asset class has such hot returns that funds are closing left and right, the savvy investor steers clear. It usually means that the securities are due for a correction, and it always means the risks of a correction have gone up considerably.
Moreover, you don't have to own a fund dedicated to foreign small caps to have some exposure there. Check any foreign or world-stock funds you own and you might find they have a meaningful slug of small- or mid-cap stocks. However, if you don't have any foreign small-cap exposure and plan on holding for 10 years or more, I can see some merit in establishing a small position in foreign small caps.
With that in mind here are few ideas that you might want to consider.
T. Rowe Price International Discovery
Polaris Global Value
DFA International Small Company
This fund actually is a pure foreign small-company fund. The catch is that you probably can't get in. It is for institutional investors and individual investors who go through a select group of planners who are dedicated to indexing and even attend DFA's seminars. If you can get in, though, the funds are great. The idea is to essentially use a passive indexlike strategy but to make money on trading by acting as a provider of liquidity. In other words, it keeps overall exposure in line with the broad small-cap market but will buy or sell in bulk in order to get a better price. Because foreign small caps can be rather illiquid, many foreign small-cap funds start off with a big disadvantage on trading costs. Simply having lower trading costs and expenses has led this fund to strong returns.
Hartford International Small Company
This fund is more of a gamble than the above funds. The reason is that costs and the track record aren't as good. The expense ratio is 1.58% on this 2-star fund. However, the good news is that the current management team from Wellington has only been at the helm since 2006. Given Wellington's strong firmwide track record, it's easy to imagine relative performance perking up. And if it does, that should attract assets and then expenses would likely come down a bit.
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