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Foreign-Fund Insight: Four World-Stock Funds That Break the Mold

These global funds, unlike most of their peers, have wide appeal.

William Samuel Rocco, 04/23/2003

<P>The world-stock category, as we pointed out in a recent <A href="/articles/doc.asp?docId=2801" >Foreign Fund Insight</A>, suffers from some serious flaws.</P> <P>Global funds generally have gained far less than large-growth, large-blend, and large-value offerings over the past decade, so they tend to have little appeal as stand-alone vehicles. Most world-stock funds focus on U.S. blue chips--rather than taking full advantage of their go-anywhere purviews--which means they have minimal, if any, diversification value for investors who already own a domestic large-cap offering as their core holding.  /?>And the fact that these funds tend to be more expensive than either foreign-stock or domestic-equity funds further undermines their attractiveness.</P> <P>Nonetheless, the entire world-stock category should not be dismissed. A handful of offerings in the group have earned strong long-term records with large-cap disciplines and work quite well as stand-alone offerings. Following are two examples of world-stock funds with the attributes to serve as the anchor for a portfolio.</P> <P><STRONG>American Funds New Perspective</STRONG> <?XML:NAMESPACE PREFIX = MSTR /?><MSTR:SECURITY>ANWPX</MSTR:SECURITY></P> <P>This multimanager fund has gained an impressive 9.2% per year over the past decade. It has achieved this feat by buying undervalued blue chips and sticking with them--portfolio turnover is normally between 20% and 35% per year here. It also looks attractive from a risk perspective, partly due to an always-ample cash stake. An expense ratio of just 0.82%, which is cheap for any sort of actively run offering, rounds out its appeal.</P> <P><STRONG>Oppenheimer Global</STRONG> <MSTR:SECURITY>OPPAX</MSTR:SECURITY> </P> <P>Manager Bill Wilby relies on a theme-oriented large-growth strategy at this offering, and he has executed it quite well since taking the helm in late 1992. The fund has returned 10% per year over the past decade, and while it has been a bit more volatile than the typical world-stock fund, it has avoided major blowups, as Wilby pays considerable attention to issue diversification. And its expense ratio is quite reasonable, at 1.12%. </P> <P>Meanwhile, a few world-stock funds have earned strong long-term records while relying on all-cap deep-value disciplines. Read on for examples of two such funds that can complement a portfolio's domestic large-blend and large-growth offerings nicely in a supporting role.</P> <P><STRONG>Mutual Discovery</STRONG> <MSTR:SECURITY>TEDIX</MSTR:SECURITY></P> <P>David Winters and Tim Rankin pursue struggling companies of all sizes and even consider distressed debt. The result is an eclectic, smaller-cap-oriented portfolio with ample diversification value for investors who own a large-blend or large-growth offering as their core holding.</P> <P>And the fund's charms don’t end there. It has been far less volatile than most domestic smaller-value offerings as well as its world-stock rivals. And its long-term returns are terrific. Indeed, its older Z share class <MSTR:SECURITY>MDISX</MSTR:SECURITY>, which is only open to institutional investors, has returned 12% per year over the past decade, while the typical mid-value and small-value offerings have gained about 9% per annum and the average world-stock offering has returned 6% per year during that period. </P> <P><STRONG>Oakmark Global</STRONG> <MSTR:SECURITY>OAKGX</MSTR:SECURITY></P> <P>Greg Jackson and Michael Welsh tend to favor smaller firms as they look for companies that are trading at a significant discount to their intrinsic value. Thus, the fund normally falls in the mid-cap section of the style box, and its portfolio usually overlaps only modestly with most large-blend and large-growth ports. But it has much more than diversification value to offer.</P> <P>This young fund has returned an impressive 11% per year over the past three years, despite struggling in early 2003, as Jackson and Welsh's stock selection has been quite good overall. That said, investors should note that big positions in individual names are common here, so the fund carries a good bit of issue-specific risk.</P> <P><EM>William Samuel Rocco is an analyst with Morningstar.</EM></P>


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