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By Christine Benz and Russel Kinnel | 12-01-2014 05:00 PM

Kinnel: 3 Funds to Boost Your Foreign-Stock Portfolio

Vanguard Total International Stock, Harbor International, and Causeway International Value are good choices for investors light on international exposure.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. U.S. stocks have outperformed foreign for several years running, but it may be time to give your foreign funds a boost. Joining me to discuss this topic is Russ Kinnel. He's director of manager research for Morningstar. Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, if investors have foreign-stock funds in their portfolios as well as U.S. stock funds, they have probably seen the contents of their portfolios jostled around a little bit over the past five years. And they've probably seen the U.S. piece grow as a percentage of their portfolio. Why should investors think about perhaps shifting things around and maybe redirecting some new assets to foreign-stock holdings?

Kinnel: I can see a couple of reasons, Christine. One is simply that, generally, that means the underperforming area has gotten a little cheaper. We heard David Herro on Morningstar.com talking about how Europe is the cheapest place to invest right now. So, valuation is one reason. Another reason is simply that a lot of the best companies are outside U.S. borders. I think many multinationals, of course, give you exposure to a lot of different markets. So, it's not as clean cut as U.S. and foreign, in reality. But again, why would you want to ignore all the good companies outside the U.S.?

Benz: So, put recent performance aside and think about globalizing that portfolio. You brought several ideas for people who may want to tip additional monies into some foreign-stock funds. One is just a pure play, Vanguard Total International Stock Index (VGTSX). Let's talk about the attributes that it has going forward. Obviously, it has very low costs.

Kinnel: That's right. It starts with low costs and, of course, it's very broad based. This particular fund has more emerging markets than you get from most index funds or most foreign large-blend funds. Its benchmark is 15% emerging markets. If you throw in South Korea and Taiwan, you are up to 20% emerging markets, depending on whether or not you count those. But the point being that emerging markets are apparently relatively cheap by most people's view. So, you're getting Europe and emerging markets all at relatively low valuations relative to the U.S. So, you're really covering a wide base. This makes a really nice core holding.

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