Globetrotting Funds We Like

A continuing debt crisis in Europe. A sluggish economy at home. Slowing growth in China. Almost anywhere investors look these days, it seems like nothing but dark clouds as far as the eye can see.

With so much uncertainty in the global economy, investors interested in stock funds might want to consider the world-stock category. Unlike traditional foreign-stock funds, which invest only in non-U.S. companies, world-stock funds can invest in stocks based anywhere, including the U.S. This flexibility makes world-stock funds potentially attractive to investors who like their managers to have free rein on where they allocate resources.

That said, scouring the globe for worthwhile investments doesn't come cheap. The average world-stock fund's expense ratio is 1.28% versus 0.91% for the average domestic large-cap blend fund, and many world-stock funds charge loads.

Aside from their versatility, world-stock funds offer instant diversification because of their broad geographic exposure. The typical world-stock fund has about 45% of its assets invested in the U.S., with another third in Europe, and the remainder in Asia and elsewhere. This diversification can make world-stock funds good core holdings for a portfolio. Funds in this category may also invest in stocks up and down the market-cap spectrum, though they tend to stick with larger-company stocks. During the past three years, world-stock funds have averaged annual gains of around 5%, second only to foreign small/mid growth among international-stock fund categories.

Keep in mind that companies often do business across borders in today's globalized world. So where a company is based might not reflect the true source of its revenue. And in this regard, even a U.S. equity fund likely provides some exposure to overseas markets. But for more explicit exposure to stocks worldwide, world-stock funds can offer great variety in one easy package.

With this in mind, we fired up the Morningstar  Premium Fund Screener and set out in search of world-stock funds that Morningstar's analysts believe are worthy of your consideration. We stuck to noninstitutional funds with Morningstar Analyst Ratings of Gold or Silver and opened it up to both load and no-load funds to provide a broader list of options for readers who may not mind paying load fees. (Note: Some investors also may have access to no-load versions of such funds through their retirement plans.) Only funds open to new investors were considered. Premium subscribers can see the full screen  here. Below is a sampling of funds.

 Mutual Quest (TEQIX)
Load: 5.75%
This fund is atypical of the world-stock category in that it holds substantial positions in bonds (nearly 17% of assets at the end of June)--including distressed debt--while also holding more than 6% in cash, more than 2 times the category average. Although its heavy bond weighting and distressed debt position is unusual, Morningstar fund analyst Bridget Hughes points out the fund's managers are experienced analysts in the field who take a value-oriented approach to investing. About 47% of assets were in U.S. stocks as of June 30, while all of the fund's overseas holdings were in Europe. The fund's distinctive strategy helped put it in the top 1% of performers for its category in 2008 (followed by a bottom decile performance during the market rebound of 2009) and has led to top quartile annualized performance over the past five years. (Note: The fund screener shows the no-load Z share class of this fund because we applied the Distinct Portfolio screen, which displays only the oldest share class. However, according to the fund prospectus, the Z shares generally are only available to current shareholders who owned shares in the fund series in 1996.)

 American Funds New Perspective (ANWPX)
Load: 5.75%
Despite substantial outflows in recent years, this fund has shown resilience. Its annualized returns have landed in or near the top quartile of world-stock funds in the trailing one-, three-, five-, 10-, and 15-year time periods. Analyst Kevin McDevitt says the fund uses a conservative growth strategy, and he lauds its parent's ability to transition managers and develop new talent. As of Sept. 30, the fund held about 39% of assets in U.S. stocks and a little more than 50% overseas, with about 7% of its stock holdings in emerging markets. Annual fees are 0.77%, below average for a load fund in this category. 

 Tweedy, Browne Value (TWEBX)
Load: None
A relative newcomer to the category, this fund joined the world-stock group in November 2009, coming from the large-value category. It maintains a value approach, with fund managers targeting companies that sport strong franchises and attractive valuations. As of Sept. 30, the fund's stock portfolio was almost evenly split between the U.S. and overseas, with about 16% of assets in cash. Overseas holdings are virtually all in developed markets. The fund had an overweighting in financials (at 22% of the portfolio versus 15% for the category average) while technology stands at just under 4%, far lower than the category average of 14%. The fund has provided returns in the top 10% of the category during the past year. Expenses are on the high side at 1.4%.

Performance data as of Nov. 15.

A version of this article appeared June 13.