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Foreign Fund Insight: Pairing International Funds

Go-anywhere combinations.

Gabriel Presler, 11/28/2001

<SPAN class=CbTxt> <P><SPAN class=CbTxt>Until recently, most investors bought just one foreign fund and called it a day. But recently, the performance of many foreign-stock funds has mirrored that of the domestic large-cap group. Consider the last few years: In 1999, U.S. large-growth funds ran up 41%, before sliding 14% in 2000. Foreign funds followed a similar pattern, jumping 45% in 1999, only to fall back 16% in 2000. Both groups have suffered heavy losses in 2001. The average foreign-stock offering has given back 23% of its value for the year to date through November 27, 2001, and its large-growth counterpart has shed 24% over the same period. </FONT></P> <P><SPAN class=CbTxt>Thus, investors need to pay closer attention to how they're building the foreign portion of their portfolios. One fund doesn't necessarily get the job done anymore. While some funds, such as Masters' Select International <?XML:NAMESPACE PREFIX = MSTR /?><MSTR:SECURITY>MSILX</MSTR:SECURITY>, Vanguard Total International <MSTR:SECURITY>VGTSX</MSTR:SECURITY>, and  Schwab MarketManager International <MSTR:SECURITY>SWOIX</MSTR:SECURITY>, are well diversified, those who want to control their own asset-allocation decisions might consider the following combinations.</P> <P><STRONG>Artisan International</STRONG> <MSTR:SECURITY>ARTIX</MSTR:SECURITY> <STRONG>and Longleaf Partners International</STRONG> <MSTR:SECURITY>LLINX</MSTR:SECURITY><BR><BR>Artisan is all about growth. Manager Mark Yockey chases earnings growth, so the fund often has heavy exposure to areas such as technology and telecom. Longleaf International's managers, meanwhile, are cheapskates who invest only in companies whose shares trade at discounts to their estimate of intrinsic value. The former's portfolio, for instance, sports price multiples that are 10% to 15% higher than the group norm, while the latter's portfolio has multiples that are below average. The Longleaf fund is also fully hedged and carries a massive Canadian stake, so its performance can be quite different from that of the typically unhedged and Europe-heavy Artisan fund.</P> <P>Investors can replicate this mix with several other funds. Indeed, the Longleaf fund may be substituted with Tweedy Browne Global Value <MSTR:SECURITY>TBGVX</MSTR:SECURITY>. Offerings such as now-closed Janus Overseas <MSTR:SECURITY>JAOSX</MSTR:SECURITY> and  Putnam International Growth <MSTR:SECURITY>POVSX</MSTR:SECURITY>, can fill in for Artisan.</P> <P><STRONG>Scudder International</STRONG> <MSTR:SECURITY>SCINX</MSTR:SECURITY> <STRONG>and Liberty Acorn International</STRONG> <MSTR:SECURITY>ACINX</MSTR:SECURITY><BR><BR>Adding a small-cap fund to a mainstream international offering is also a sensible move.</P> <P>Consider this combination, for instance. Scudder International is large, carrying $5 billion in assets, and weighs in with a median market capitalization of approximately $29 billion, one of the largest in the category.</P> <P>Enter Liberty Acorn International, which has more of a small- to mid-cap focus, and a median market capitalization below $2 billion. The fund buys out-of-the-way stocks, so the risk of overlap is minimal. And because the Acorn fund has no qualms about the developing world, investors pick up sizable exposure to Latin America and the Pacific Rim, areas that aren't meaningfully represented in the Scudder fund.</P> <P>A 70/30 mix is a good bet here, but both funds recently added loads, so they won't appeal to everyone. No-load aficionados may try replacing Scudder with Deutsche International Equity <MSTR:SECURITY>BTEQX</MSTR:SECURITY>, although Acorn's uniqueness is much harder to duplicate.</P> <P><STRONG>Oakmark International</STRONG> <MSTR:SECURITY>OAKIX</MSTR:SECURITY> <STRONG>and T. Rowe Price International Discovery</STRONG> <MSTR:SECURITY>PRIDX</MSTR:SECURITY><BR><BR>This portfolio differs from the mainstream in a big way: You're unlikely to find many of the large index stocks in these portfolios. Instead, there's a healthy mix of mid-caps and plenty of emerging-markets exposure. The Oakmark fund, for instance, has a median market capitalization of $1.2 billion, while the T. Rowe Price offering's median market cap is a lighter $800 million.</P> <P>An evenly divided growth and value mix adds balance here. The Oakmark offering has little technology exposure to go with its heavy weighting in consumer durables and staples. In contrast, the T. Rowe Price offering is heavily exposed to technology and light on the other areas.</P> <P>Other combinations to consider include Europacific Growth <MSTR:SECURITY>AEPGX</MSTR:SECURITY> and Westcore International Frontier <MSTR:SECURITY>WTIFX</MSTR:SECURITY>, and Harbor International <MSTR:SECURITY>HAINX</MSTR:SECURITY> and Harbor International Growth <MSTR:SECURITY>HAIGX</MSTR:SECURITY>.</P> <P><EM>Senior analyst Kunal Kapoor contributed to the original version of this article, which ran on April 11, 2001, on Morningstar.com.</EM></P> /?> /?> /?>


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