Steer Clear of These International Clunkers

Excellent international funds abound. In fact, there are so many fine choices available that in the broad foreign-stock category we had a tough time narrowing the list to only five  Fund Analyst Picks. So we’ve brought other solid international offerings to your attention in a number of Fund Spy and Foreign Fund Insight columns.

Unfortunately, however, not all international funds carry outstanding pedigrees. Some just can’t pull their weight--and we think that alerting you to the lousy offerings in these categories provides a valuable service. If you’re thinking of buying these, think again--and if you already own them, look for alternatives.

The funds listed below aren’t highlighted merely for poor performance--you can find the worst performers in a category yourself. Rather, these funds have not only weak returns over a lengthy period of time, but also frequent changes of manager or strategy, high expenses, or other unsightly traits.

AIM Euroland Growth 
This fund has three strikes against it: Consistently terrible performance, several strategy changes, and a gimmicky mandate. Under prior names and managers, this was merely an underwhelming broad-Europe fund. Then, when the idea that much of Europe would adopt a single currency seemed an intriguing novelty, the fund decided to restrict itself to the euro countries. It also brought in a new manager who instituted a dramatic strategy shift from value to aggressive growth. Performance improved for a short time, but then crashed along with growth stocks. Meanwhile, the restriction to "euroland"--now enforced more strictly, owing to an SEC guideline on fund names--makes little sense. With few exceptions, it prevents the managers from owning stocks in the U.K. or Switzerland, the homes of many of Europe's leading companies. It’s hard to justify owning a regional fund that’s shut out of important parts of its region.

Alliance International 
Under yet another new manager, who came aboard in early 2001, this offering has put up average performance over the past 12 months. Sadly, this mediocre showing is actually welcome, given the fund’s dismal history. But it’s certainly not enough to make the fund attractive. Since April 1993, four different managers using a variety of strategies have tried their hand here, and none has shined. Will Ed Baker, the current occupant of the hot seat, do any better? He may not have much time to prove himself: The prior two managers only lasted one and two years, respectively.

AXP International 
The above description of Alliance International would sound depressingly familiar to anyone unfortunate enough to have owned AXP International over the years. A revolving door in the managers’ suite amid inconsistent performance has made this fund one to avoid. Also like the Alliance offering, this vehicle has a new manager in charge--although in his case, he’s really new, having just arrived in February 2002. AXP seems intent on improving its overall fund lineup, which has been awful, and this fund could benefit from that effort. But there’s no reason to bet your money on that possibility.

Montgomery Global Focus 
Small, focused portfolios can work, but only if the managers pick the right stocks to concentrate on. That hasn’t happened here. Manager Oscar Castro, who had enjoyed some success at other Montgomery funds, took over this portfolio in mid-2000. The fund’s performance has been scraping the bottom of the world-stock category ever since. Sure, his growth-oriented style has been out of favor. But the fund lagged the category average even when growth stocks rallied in 2001's fourth quarter--and the depths of its losses during the remainder of the past two years don’t instill confidence. Nor does the fact that the fund, having changed strategies in 2000, had to make further adjustments to its mandate and name when it found it was not following its own goal to limit itself to 20 stocks. A 1.80% expense ratio, well above the no-load category norm, doesn’t help its case.