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By Jeremy Glaser and Shannon Zimmerman | 11-07-2012 03:00 PM

Patient Investors Rewarded Overseas

Despite large ongoing redemptions among certain foreign-stock categories, those who have stayed invested have earned a positive year-to-date return.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Investors have continued to pull money out of international-stock mutual funds, but for the ones that have stayed, how have they fared? I'm here with Shannon Zimmerman. He's an associate director of fund analysis at Morningstar. We're going to take a look at some of the performance.

Shannon, thanks for talking with me today.

Shannon Zimmerman: Good to be with you, Jeremy.

Glaser: So, let's talk a little bit about how those international funds have done so far in 2012.

Zimmerman:Well, as with the U.S. markets, international markets have largely done well. We have no international-stock fund categories that are in the red so far this year. We have some that have done quite a bit better than others. I'm going to talk about those. If you look at what have been the performance drivers among our diversified international categories, it's been better to be in smaller-cap funds rather than large, it's been better to be in growth-oriented funds rather than value-oriented funds.

Actually, we saw a little bit of growth trumping value on the U.S. side earlier this; that's kind of dissipated. But the market-cap dynamic is quite a bit different. On the U.S. side, large cap has been the sweet spot for the market, whereas internationally it has been the small- and mid-cap categories. In fact, foreign small-mid growth that's been the number-two category by performance so far this year and a typical fund in that category is up about 18%.

Glaser: Looking at the international categories then, what's performed the best so far?

Zimmerman: Well, India equity has been the best-performing international-stock fund category, but it's a tiny category with about only 12 funds, the last time I looked, which is really about 15 minutes ago. All of them are up pretty substantially, so a solid performance in absolute terms. The top performer in that category is a Goldman Sachs fund, Goldman Sachs India Equity, up about 33%. And one at the end of that list, the 12th of them is a Franklin fund, Franklin India Equity, which is up about 16%. So, still even at the bottom of that list, that's quite a nice return.

Places in the international markets that have not done so well are Latin American stock and Japan stock. Both of those categories are positive on the year, but the Japan-stock category is up only about 2% and Latin American stock is up less than 6%.

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