Three International Funds Just Got More Attractive

In a recent Bond Squad column, Morningstar senior fund analyst Eric Jacobson cited a number of bond funds that recently cut their expense ratios. (These weren't cases where the ratio simply fell as assets grew and costs could be spread among more shareholders; the funds were actively cutting fees.) Now there's more good news: Several international funds also have become cheaper to own.

What's more, two of these foreign funds are among the better choices in their groups, and the third, though not as impressive, has worthwhile attributes of its own. None of these funds will be remarkably cheap at the new fee level, but they'll be much more palatable--and the changes are particularly noteworthy because in each case the high cost was the fund's main shortcoming.

Could we be entering an era where more and more funds, of every variety and from every firm, will do everything possible to keep expense ratios as low as they can? Let's hope so. In the meantime, let's just be glad that in an environment when far too many funds cost far too much, three solid international funds have made the effort to push their costs in the right direction.

 Neuberger Berman International 
Few investors have discovered this offering, which has only about $150 million in assets. But it's well worth noticing. It had an inconsistent record prior to the arrival of current lead manager Benjamin Segal, who took the reins in 2000. But since then, it has established itself as one of the more successful--and more unusual--offerings in the foreign small/mid growth category. Segal tends to favor mid-caps, but he will buy stocks of just about any size, and you're definitely getting active management: The portfolio looks nothing like any index. For example, the fund has prospered in part by finding winners in Ireland and Greece, whereas neither country plays much of a role in the MSCI EAFE Index or in most rivals' portfolios.

Until now, this fund has had a price tag that's hard to take. But Segal says that within the next few months, that fee is very likely to fall from its current level of about 1.70%. He says a precise figure has not yet been determined, but that the fee would likely drop from the higher end of the spectrum to the middle of the range. If that means a decline to 1.50% or so, this offering's cost would be below average for no-load funds in its category. Of course, an even lower fee would be welcome, but any decent-sized cut would make this fund even more attractive than it already is.

 Managers International Equity 
This fund isn't quite as appealing as the others listed here, but its long-term returns are decent and its calling card is an exceedingly mild level of volatility, relatively speaking. It relies on three subadvisors who come from different firms and use different approaches. None is overly aggressive, which helps account for the overall portfolio's low volatility.

The fund's expense ratio has edged above 1.70% in recent years. But Managers research director Tom Hoffman says the board has approved a measure to cap that ratio at 1.55%. He says Managers is hoping to attract more investors--the fund has only $238 million in assets even though it has been around for 18 years--with a more reasonable price.

 Schwab International MarketMasters 
This is one of the most attractive foreign large-blend offerings: The black mark against it was its 1.65% expense ratio. Though not as outrageous as the fees charged by some international funds, that figure was far higher than the no-load average for this fund's category. The ratio could come down if assets continue to grow--the fund now has about $500 million in its coffers. But in the meantime, Schwab has come out with a new share class , and manager Jeffrey Mortimer says it will charge 1.47%.

One sticking point is that this new share class, called Select shares, is available only with an initial investment of at least $25,000. But at least its creation makes a fine fund available to some folks at a more acceptable price. Indeed, this offering, which changed its format from a fund-of-funds to a straightforward multimanager setup a couple of years ago, has assembled a topnotch long-term record. The current lineup of managers from Harris Associates (who run the Oakmark Funds), William Blair, Artisan, and American Century includes some of the top names in the field.