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Foreign Fund Insight: Recently Successful, but Not Safe

Foreign Fund Insight: Recently Successful, but Not Safe

William Samuel Rocco, 10/17/2001

<SPAN class=CbTxt> <P><SPAN class=CbTxt>It's natural to expect that conservative funds would be the top-performing international offerings thus far in 2001. After all, such funds are supposed to be at their best during rough weather, and this year's climate has been particularly stormy. The typical international-stock offering has plunged nearly 23% for the year to date through October 12, 2001. </FONT></P> <P> <TABLE cellSpacing="0" cellPadding="0" width=422 border="0" > <TD vAlign="top" bgColor="#999999" colSpan=3><FONT face="Trebuchet MS" color="#ffffff" size="-2" ><B> Top-10 International-Stock Offerings </B></FONT></TD> <TD><IMG height=5 src="http://im.morningstar.com/im/dot_clear.gif" width=237></TD> <TD><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=104></TD> <TD><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=80></TD> <TD><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=1></TD> <TD vAlign="top" align="left" ></TD> <TD vAlign="top" align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=#999999 size="-2" ><B>Category</B></FONT></DIV></TD> <TD vAlign="top" align=right><FONT face="Trebuchet MS" color=#999999 size="-2" ><B>YTD Return<BR>( % )</B></FONT></TD> <TD colSpan=3><IMG height=5 src="http://im.morningstar.com/im/dot_clear.gif" width=422></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Pilgrim Russia <?XML:NAMESPACE PREFIX = MSTR /?><MSTR:SECURITY>LETRX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Europe-Stock</FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >35.0</FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Matthews Korea <MSTR:SECURITY>MAKOX</MSTR:SECURITY></FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Pacific/Asia ex-Japan</FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >25.4 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Third Millenium Russia <MSTR:SECURITY>TMFRX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Europe-Stock </FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >18.2 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Longleaf Partners <MSTR:SECURITY>LLINX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Foreign-Stock </FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >9.6 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Mathes China <MSTR:SECURITY>MCHFX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Pacific/Asia ex-Japan</FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >7.8 </FONT></TD> <TD colSpan=3 height=2><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >RS Partners <MSTR:SECURITY>RSPFX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock</FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >7.0 </FONT></TD> <TD colSpan=3 height=2><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Purisma Total Return <MSTR:SECURITY>PURIX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock </FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >6.9 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Regent Eastern European <MSTR:SECURITY>EUROX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Europe-Stock </FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >2.1 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Oakmark Global <MSTR:SECURITY>OAKGX</MSTR:SECURITY></FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock </FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >1.7 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Matthews Asian Growth & Income <MSTR:SECURITY>MACSX</MSTR:SECURITY> </FONT></TD> <TD align=right> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Pacific/Asia ex-Japan</FONT></DIV></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" >1.5 </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" ><B>International-Stock Fund Average</B> </FONT></TD> <TD align=right></TD> <TD align=right><FONT face="Trebuchet MS" color=black size="-2" ><B>-22.6</B> </FONT></TD> <TD colSpan=3><FONT face="Times New Roman, Times, serif" color=black size="-2" ><IMG height=9 src="http://im.morningstar.com/im/422x9rule.gif" width=422></FONT></TD> <TD vAlign="top" colSpan=3><FONT face="Trebuchet MS" color=#999999 size="-2" >Data as of 10-12-01. </FONT></TD></TABLE></P> <P><SPAN class=CbTxt>However, most of this year's top-performing international-stock funds are anything but safe. Four of the top 10 are single-country emerging-markets offerings. And not only is that daring--single-country emerging are the boldest kind of international offerings around--but they focus on the wild Russian, Chinese, and Korean exchanges.</FONT></P> <P><SPAN class=CbTxt>While Russian stocks have prospered this year, the country is plagued by political and economic instability, corruption, and limited protection for shareholder rights, and it is arguably the most perilous of the major emerging markets. China isn't as dangerous a place to invest as Russia--and it has the benefit of great demographics--but it has serious political risks of its own. And while Korea seems to have made a successful transition to democracy and progress in other areas, it still has along way to go on the economic and corporate fronts. Not surprisingly, extreme volatility and excruciating losses are facts of life for these single-country emerging-markets funds; Pilgrim Russia <MSTR:SECURITY>LETRX</MSTR:SECURITY> plunged 83% in 1998. </FONT></P> <P> <TABLE cellSpacing="0" cellPadding="0" width=422 border="0" > <TD vAlign="bottom" align="left" bgColor="#999999" colSpan=5><FONT face="Trebuchet MS, Arial, Helvetica" color="#ffffff" size="-2" ><B> This Year's International Leaders Have Been Volatile over Time</B></FONT></TD> <TD vAlign="bottom" align=right><IMG height=5 src="http://im.morningstar.com/im/dot_clear.gif" width=180></TD> <TD vAlign="bottom" align=right><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=102></TD> <TD vAlign="bottom" align=right><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=3></TD> <TD vAlign="bottom" align=right><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=54></TD> <TD vAlign="bottom" align=right><IMG height="1" src="http://im.morningstar.com/im/dot_clear.gif" width=53></TD> <TD vAlign="top" align=right></TD> <TD vAlign="top" align=right> <P align="left" ><FONT face="Trebuchet MS" color=#999999 size="-2" ><B>Category</B></FONT></P></TD> <TD vAlign="top" align=right></TD> <TD vAlign="top" align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#999999 size="-2" ><B>3-Year<BR>Standard<BR>Deviation<BR>( % )</B></FONT></TD> <TD vAlign="top" align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#999999 size="-2" ><B>Category's<BR>3-Year<BR>Standard<BR>Deviation<BR>( % )</B></FONT></TD> <TD vAlign="top" align=right colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=5 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=#000000 size="-2" >Pilgrim Russia <MSTR:SECURITY>LETRX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=#000000 size="-2" >Europe-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >88</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Matthews Korea <MSTR:SECURITY>MAKOX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=#000000 size="-2" >Pacific/Asia ex-Japan </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >70</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >36</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=#000000 size="-2" >Third Millenium Russia <MSTR:SECURITY>TMFRX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=#000000 size="-2" >Europe-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >81</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Longleaf Partners <MSTR:SECURITY>LLINX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Foreign-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >N/A</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >21</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Mathews China <MSTR:SECURITY>MCHFX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Pacific/Asia ex-Japan </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >47</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >36</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >RS Partners <MSTR:SECURITY>RSPFX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Purisma Total Return <MSTR:SECURITY>PURIX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >15</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Regent Eastern European <MSTR:SECURITY>EUROX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >Europe-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >29</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Oakmark Global <MSTR:SECURITY>OAKGX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=black size="-2" >World-Stock </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >N/A</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=black size="-2" >22</FONT></DIV></TD> <TD colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=3 src="http://im.morningstar.com/im/dot_clear.gif" width=422></FONT></TD> <TD><FONT face="Trebuchet MS" color=black size="-2" >Matthews Asian Growth & Income <MSTR:SECURITY>MACSX</MSTR:SECURITY> </FONT></TD> <TD> <DIV align="left" ><FONT face="Trebuchet MS" color=#000000 size="-2" >Pacific/Asia ex-Japan </FONT></DIV></TD> <TD></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >17</FONT></DIV></TD> <TD> <DIV align=right><FONT face="Trebuchet MS, Arial, Helvetica" color=#000000 size="-2" >36</FONT></DIV></TD> <TD align=right colSpan=5><FONT face="Trebuchet MS" color=black><IMG height=9 src="http://im.morningstar.com/im/422x9rule.gif" width=422></FONT></TD> <TD align="left" colSpan=5><FONT face="Trebuchet MS" color=#999999 size="-2" >All data through 10-12-01.</FONT></TD></TABLE></P> <P><SPAN class=CbTxt>Meanwhile, the two regional emerging-markets offerings, Regent Eastern European <MSTR:SECURITY>EURUX</MSTR:SECURITY> and Mathews Asian Growth & Income <MSTR:SECURITY>MACSX</MSTR:SECURITY>, are a mixed bag when it comes to risk. Regent Eastern European, which divides its assets between Russia and a handful of its developing neighbors, has been significantly more turbulent than the typical Europe-stock offering, and it plummeted a painful 25% in 1998. Matthews Asian Growth & Income <MSTR:SECURITY>MACSX</MSTR:SECURITY>, on the other hand, has been less choppy than the average international offering and has been the least volatile member of its category by far. It has been steadied by its diversification, value discipline, and has been helped by its emphasis on convertible bonds. </FONT></P> <P><SPAN class=CbTxt>Finally, though the four other members of the top 10 are regionally diversified foreign and world offerings, that doesn't mean they're all tame. Relatively young Longleaf International <MSTR:SECURITY>LLINX</MSTR:SECURITY> has thrived by focusing on 20 to 25 cheap stocks and fully hedging its currency exposure. What's more, its pedigree suggests it should be a long-term winner. Still, its strict discipline exposes it to issue-specific risk and it's likely to struggle when growth stocks lead the way. </FONT></P> <P><SPAN class=CbTxt>While Purisma Total Return <MSTR:SECURITY>PURIX</MSTR:SECURITY> is a fairly reserved offering, don't be fooled by RS Partners <MSTR:SECURITY>RSPFX</MSTR:SECURITY> recent success and moderate three-year standard deviation. Manager Andy Pilara readily loads up on commodity stocks, and that emphasis caused the fund to plunge 27% in 1998 as the average world-stock fund gained 13%. And though Oakmark Global <MSTR:SECURITY>OAKGX</MSTR:SECURITY> has executed its hard-core value strategy deftly since opening in late 1999--and also enjoys good long-term prospects--it, too, is likely to suffer significant damage when its style is out of favor. </FONT></P></FONT> /?> /?> /?> /?> /?> /?> /?>

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