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Fund Spy

Three New and Noteworthy Global Funds

These offerings have promise, but investigate before you jump in.

On occasion we have been critical of the bulk of the available choices in the world-stock category--called global funds by many in the mutual fund industry--because, so often, most investors could do better simply by pairing topnotch domestic funds with solid foreign funds themselves. Yet as Morningstar analyst Kai Wiecking pointed out in a Fund Spy a few months ago, we like the concept of being able to buy one fund with the freedom to invest wherever the best opportunities lie at any particular point in time, especially if that flexibility is being afforded to talented managers.

For that reason, we welcome the arrival of three new world-stock funds. To be sure, we're not recommending you jump right into these. As with any other fund, you must check out their strategies to make sure they align with your preferences and your other portfolio holdings, take a look at their expenses, and consider all the other factors important when choosing a fund.

You might wonder why you'd buy a global fund if you already own domestic and foreign funds. The answer is that if the managers are talented and willing to break from the pack, it's very possible the global fund won't be redundant. Rather, adding a top-quality world-stock fund with good managers and an uncommon strategy can make your overall portfolio stronger and more diversified.

For example, in my own case, a few years ago I bought  First Eagle Global (SGENX) (now closed to new investors), even though I already owned a variety of domestic- and international-stock funds. Given that fund's unusual style, its holdings did not overlap much with those in my other funds, and I liked the way its cautious, all-cap value orientation fit with the rest of my portfolio. (Note: That fund technically is a world-allocation stock rather than world-stock because of its willingness to own bonds and cash, but it leans heavily toward the stock side.) So keep the following funds--as well as the world-stock funds mentioned in our previous Fund Spy--in mind in case one does turn out to be just what you are looking for.

Oakmark Global Select
Oakmark already offers a world-stock fund,  Oakmark Global (OAKGX), and that one is an Analyst Pick in the world-stock category. But the new one--expected to come out in the next few months--will have different managers, and its portfolio will be even more focused than the relatively compact Oakmark Global, which generally owns 50 stocks or so. The new fund typically will have only 20 holdings and can go as low as 12. Its portfolio will be a combination of picks from U.S. manager Bill Nygren of  Oakmark Fund (OAKMX) and  Oakmark Select (OAKLX) and international manager David Herro of  Oakmark International (OAKIX) and  Oakmark International Small Cap (OAKEX).

Neither is a manager on Oakmark Global, but that fund's holdings do show significant overlap with their funds, because all the managers adhere to an overall Oakmark value philosophy. The key difference with this one will be the extreme concentration--which increases the risk, of course, as well as the potential for outperformance--and the fact you can own just this one to get full global exposure. Nygren and Herro clearly believe in it: According to the prospectus, each plans to invest more than $1 million of his own money in the fund, even though both managers already have more than $1 million invested in each of their two existing offerings.

Given its managers, who have had long-term success with their own charges, this new fund certainly has potential. That doesn't mean it is perfect for you. For one thing, the preliminary prospectus says the expense ratio will initially be capped at 1.75% for an unspecified period, which is a steep fee. The fund would be more attractive at a lower cost, so keep tabs to see if that figure comes down. Also, if you already own domestic or foreign large-value funds, this one's holdings could overlap with those. But if you don't, there's a good chance Nygren's and Herro's picks will add a different flavor to your portfolio.

Thornburg Global Opportunities (THOAX)
Unlike Oakmark's offering, which has not yet launched, this fund is open for business, having opened on July 28. Although it isn't managed by Bill Fries, who manages Thornburg's most recognizable offerings, the new fund's managers have solid credentials of their own. One is Brian McMahon, the firm's chief investment officer, who comanages Thornburg Investment Income Builder (TIBAX). That fund has only been around a few years, but it has built an admirable record in that time. The other manager, Vinson Walden, has been part of the investment team behind the funds led by Fries,  Thornburg Value (TVAFX) and  Thornburg International Value (TGVAX), since 2002.

Like the Oakmark offering, this one will be highly concentrated: Thornburg expects it to hold just 30 to 40 stocks. Some of those holdings might be small caps, for it will be allowed to own any size of stock, including those with market caps of less than $500 million; indeed, McMahon's other fund has roughly 10% of its assets in small caps. That fund, a world-allocation offering, currently has a little more than 40% of assets invested in the United States, though the new fund won't necessarily have that same breakdown. According to the prospectus, Thornburg will cap Thornburg Global Opportunities' expense ratio at 1.63% for an indefinite period of time.

Harbor Global Value 
This fund launched Aug. 7. It is subadvised by Pzena Investment Management, and the managers are A. Rama Krishna, managing principal and portfolio manager of Pzena; John Goetz, managing principal and co-chief investment officer; and Michael Peterson, principal and director of research. A team from that firm, including Krishna and Goetz, also runs  John Hancock Classic Value (PZFVX), which has an outstanding record over the 10 years it has been in charge there. That fund uses a fairly strict value approach, as its name implies; in fact, nearly all of the valuation figures for its current portfolio are even lower than the average for the large-value category.

Harbor Global Value will use that same strategy, and it won't aim to have any specific target for its U.S. versus foreign exposure. Instead, it will let that balance fall where it may depending on where its managers find the most attractive investments. The fund will, though, limit its emerging-markets exposure to a maximum of 10% of assets. Don't look for substantial small-cap exposure here: The fund typically will require its holdings to have a minimum market cap of $2 billion.

To avoid the problem of small new funds having exorbitant costs, Harbor Global Value, like the funds listed above, will cap its expense ratio. This one's cap is 1.38% for its first year of operation--significantly lower than the figures for the other two funds. After that, check to see if the cap has been renewed or if the cost has come down as a result of growing assets.

 

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