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By Russel Kinnel | 01-15-2015 11:00 AM

4 High-Conviction Foreign-Stock Funds

Although some prominent foreign-stock funds have closed, solid choices remain available for investors looking to globalize their portfolios, says Morningstar's Russ Kinnel.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. With some prominent foreign-stock funds shutting their doors, some investors interested in globalizing their portfolios may be on the hunt for new ideas. Joining me to share some foreign-stock fund favorites is Russ Kinnel. He is director of manager research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: One thing I have been thinking about is whether, in light of the fact that foreign stocks have underperformed U.S. for a few years here, investors are perhaps losing faith in foreign-stock investing. And what are some reasons to think about making sure that you have a global portfolio?

Kinnel: I think some [investors] are. They look at their returns in emerging markets or foreign developed markets and see these meager returns compared with U.S. funds. So, I think it always tries people's patience when that happens. And of course when that happens, sometimes we will start to come up with stories about how U.S. companies are great. I remember in the late '90s we started to hear lots of stories saying, "Why invest overseas? The U.S. is so superior." And of course, usually when you hear that, it means we are setting ourselves up for a fall because the U.S. is going to lag the next few years. It's not guaranteed, but that tends to happen.

Benz: And there is some indication, perhaps, that foreign-stock valuations are maybe not a screaming buy right now but perhaps lower than U.S. valuations currently.

Kinnel: That's right. Emerging markets, even though they have still remained somewhat popular with U.S. investors, have more or less done nothing the last five years. Developed markets, elsewhere, have done a little better than that; but again, the strong dollar has weakened that so that a U.S. investor saw even worse returns the last couple of years. But obviously, Europe's been stagnant, so valuations do look pretty cheap. If you look at some of the asset allocators like GMO or Rob Arnott's group, they tend to have projections for better returns overseas than in the U.S.

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