Three Hidden International Mutual Fund Gems

After years of neglect by U.S. investors, international and global stock funds have been all the rage in recent years. The fund flow numbers for 2006 bear out the enormity of this shift in shareholder interest. As measured by Morningstar categories and as reported by Financial Research Corporation, foreign large-blend funds topped the list, followed in third place by foreign large-growth. In total, foreign and global equity offerings raked in a mind-boggling $193 billion last year, dwarfing the $43 billion flowing into domestic-stock funds.

This stampede has led to many funds either closing their doors to new investors or getting severely bloated and thus limited in their ability to maneuver (such as  American Funds EuroPacific Growth (AEPGX)) and react to major shifts in market trends should they occur.

We thought it would be a good idea then to filter our funds database for attractive large-cap foreign-stock funds with less than $500 million in assets and minimum investments of $50,000 or less. (We focused on large-cap offerings because almost all good small-cap options are closed, and the asset class is arguably overvalued.) To determine attractiveness, we simply looked for funds with five-year Morningstar Ratings of 4 stars or better, achieved by one and the same manager, and charging below-average expenses. Using our  Premium Mutual Funds Screener, three funds made the cut and thus warrant a closer look.

Laudus Rosenberg International Eq Instl 
Laudus funds are offered by Charles Schwab, but the subadvisor behind this offering is Rosenberg, a British quantitative boutique with a stellar reputation among institutional investors in Europe. CIO William Ricks has been responsible for the execution of Rosenberg's proprietary multimodel stock-picking system since its inception and has been with the firm long before it was taken over by French insurance giant AXA in 1999. A distinct value bias and broad diversification are hallmarks of Rosenberg's investment approach. And even though this fund contains more than 370 distinct stock positions, it doesn't look or behave anything like the MSCI EAFE Index, a widely used benchmark for foreign-stock funds. It offers solid downside protection when the going gets rough, such as during the 2000-02 bear market. That characteristic more than makes up for its tendency to trail its more-focused peers during upswings. The resulting muted volatility makes this fund a suitable portfolio anchor for investors with $50,000 to spare--all others have to make do with the retail share class , whose price tag of 1.72% is less attractive than the 1.34% charged here but still viable.

Manning & Napier World Opportunities 
Suburban Rochester, N.Y., may not seem like the most likely location for managers of an international fund, but Manning & Napier, a midsize employee-owned shop, has produced a compelling offering here. The six manager-analysts running this all-cap fund start with a number of macroeconomic assumptions that lead to a target allocation to certain sectors and countries. They then conduct fundamental stock selection within this framework, applying strict valuation metrics. This leads to a rather concentrated portfolio that tends to take very active bets at the sector, country, and individual stock level. For instance, the fund has a massive 14% currently allocated to French names, such as luxury resort pioneer Club Mediterranee, but only maintains a 2.5% position in Japanese stocks. Managers here also selectively hedge back in the U.S. dollar, which helps in reducing volatility but which can reduce the fund's diversification properties at times. So, this ends on sort of a downbeat note. But the fund's distinct investment process, as well as its moderate 1.16% price tag, makes this an attractive option.

Thomas White International 
This is one of only two retail mutual funds offered by this Chicago-based boutique, founded by its namesake, a former Morgan Stanley fund manager. White and his colleagues employ a rigorous bottom-up approach with strict valuation and financial solidity criteria. This firm's commitment to international investing is evident also in its extensive effort to build an analyst team in India. As for the fund itself, it has only begun to excel in recent years, following an extended period of below-par results. But White's stock-picking skills have improved, and the fund's significant exposure to high-flying emerging markets has certainly helped. This would be a warning in many cases, but a closer look at the portfolio reveals that the focus of this offering's investment in developing markets is on solidly financed, globally operating companies such as Samsung Electronics (SSNLF).