Use this screen to find foreign funds that stayed calm amid rough waters.
The market meltdown in 2008 and the sharp reversal that followed during most of last year have made for an exceptionally volatile three-year period for global equity funds. And in most cases, last year's strong returns haven't erased the pain of the sell-off. On average, foreign large-cap funds were down 44% in 2008 and gained 33% in 2009. The group averaged a loss of 6% per year for the past three years.
The 10-year picture for foreign large-cap funds is rosier but certainly not mind-blowing. That's because the trailing 10-year period now begins with the 2000-02 bear market (when many funds posted double-digit losses during each calendar year) in addition to 2008's downturn and excludes the red-hot gains of 1999. So the typical foreign large-cap returned roughly 2% per year during the past decade.
Morningstar Principia can point to funds that bested that 2% annualized gain during the past 10 years and provided a smoother ride, particularly as markets have seesawed during the past three years.
To begin the screen, focus on foreign large-cap funds that sport reasonable price tags and are open to new investors.
Special Criteria = Distinct Portfolios Only
And ( Morningstar category = Foreign Large Value
Or Morningstar category = Foreign Large Blend
Or Morningstar category = Foreign Large Growth )
And Audited expense ratio < = 1.50
And Purchase Contraints NOT= Closed-New Investment
The screen is also set to pull funds that rank in the top third of their respective categories for the trailing three years and that sported lower volatility (as measured by standard deviation) than Vanguard Total International Stock Index
And % Rank Cat 3 Yr < = 33
And Std Dev 3 Yr < 26
The longer-term stress test starts with requiring 10-year annualized returns of 2% or more.
Plus, manager tenure is set to 10 years or more to ensure that current management is responsible for the fund's performance during the entire time frame. In terms of risk, we narrowed it down to funds that have achieved low or below average Morningstar Risk ratings. This measure assesses variations of monthly returns compared with similar funds over three-, five-, and 10-year periods, emphasizing investors' higher sensitivity to downside risk in the trade-off for returns.
And Tot Ret Annlzd 10 Yr > = 2
And Manager Tenure (Longest) >= 10
And ( Mstar Risk 10 Yr = Below Avg
Or Mstar Risk 10 Yr = Low )
The screen pulled several funds as of April 13. Here are a few that stand out.
American Funds EuroPacific Growth
Its strong relative performance and below- average volatility are owed to the stock-picking of several portfolio counselors who each run slices of the fund independently. Though the counselors run their portions of the fund independently, they tend to be long-term oriented with their picks, and price multiples tend to hug the category norms.
Tweedy Browne Global Value
That said, the typical large-value fund lost twice as much. Managers William Browne, John Spears, and Tom Shrager look across the market-cap spectrum for stocks, but their penchant for steady growers with strong balance sheets has provided ballast for the fund when markets are reeling.
Karin Anderson is a mutual fund analyst with Morningstar.