By WARREN BOROSON
(Morris County, N.J.) Daily Record
If you're expecting a tax refund, maybe it would be a good idea to invest the money overseas.
Most Americans don't have much money stashed abroad. And foreign stocks, while they are increasingly moving in step with U.S. stocks, nonetheless offer some diversification. Last year, for example, when the U.S. funds rose 30.67 percent, foreign funds rose even more: 41.46 percent. In 2002, when the U.S. funds lost 20.49 percent, foreign funds lost less: only 14.7 percent.
Knowledgeable investors insist that stocks in many foreign markets are priced more reasonably than stocks here.
My favorite foreign fund is Dodge & Cox International, a no-load fund that has returned 75.82 percent over the past year. A large-value fund, it's rather new (having begun life in 2001), but Dodge & Cox itself is an old, splendid fund family. Although the fund isn't rated by Morningstar (because of its youth), it's an Analyst Pick. Recently, it was 49 percent in the U.K. and Western Europe, 26 percent in Japan. Minimum: $2,500. Phone: (800) 621-3979.
Other favorites include Julius Baer International A, a five-star Morningstar fund and also an Analyst Pick. It's a no-load large-cap blend fund. Recently it was 66 percent in the U.K. and Western Europe. Minimum: $2,500. Phone: (800) 435-4659.
A large-cap no-load growth fund is Masters' Select International, run by five different managers. It's a five-star fund, but not an Analyst Pick because of its high expenses. Recently it was 48 percent in the U.K. and Western Europe, 17 percent in Japan. Minimum: $5,000. Phone: (800) 960-0188.
A small/mid-cap foreign value fund that's promising is Third Avenue International Value, which began only in 2002 and has a fine record so far. It was recently 35 percent in the U.K. and Western Europe, 21 percent in Asia (without Japan), 19 percent in North America (mostly Canada), and 16 percent in Latin America. Minimum: $2,500. Phone: (800) 443-1021.
I prefer foreign or international funds to global funds, because global funds invest in U.S. stocks and therefore won't provide that much diversification for your portfolio. But the main criterion is whether a fund has a fine record, and one sensational global fund is Oakmark Global I, which recently was 39 percent in U.S. stocks. It's classified as large-growth. Five stars; an Analyst Pick. Minimum: $1,000. Phone: (800) 625-6275.
I would avoid single-country funds until (1) you have a well-diversified foreign portfolio and (2) you really know what you're doing.
Also worth naming are the foreign funds that Morningstar FundInvestor holds in its model portfolios. In its more aggressive portfolio (85 percent stocks), Artisan International; in its somewhat conservative portfolio (65 percent stocks), Tweedy Browne Global Value; in its most conservative portfolio (35 percent stocks), Julius Baer International A.
The usual recommendation is that a portfolio's stocks be 20 percent to 30 percent invested abroad.
One interesting recommendation from Albert J. Fredman, a professor of finance at California State University, Fullerton, is that investors consider owning both a developed-markets fund and an emerging-markets fund. Fredman likes index funds along with Exchange Traded Funds. And among emerging-markets funds, he favors Vanguard Emerging Markets Stock Index in particular.
Considering just actively managed emerging-markets funds, one interesting possibility is SsgA Emerging Markets, a no-load four-star fund that was recently 57 percent in Asia (without Japan), and 24 percent in Latin America. Minimum: $1,000. Phone: (800) 647-7327.
Fredman's general advice, as published in the AAII Journal in August 2002:
If you are going to add to your investments regularly, a foreign index fund may be better than an Exchange Traded Fund, which will charge you commissions for further investments.
Target 10 percent to 20 percent of your portfolio to non-U.S. stock funds if you have a multidecade time horizon.
Diversify. Don't concentrate on hot markets, developing markets, small foreign stocks or a particular geographical area.
Avoid high-cost funds. "Because foreign investing is more costly in general, it's easy to overpay."
Avoid currency hedgers. Funds that don't try to protect themselves against currency fluctuations "enjoy a built-in cost advantage." (But one fine fund that hedges is Tweedy Browne Global Value.)
Consider foreign index funds. A key reason that such funds haven't done well in recent years is their obligatory large exposure to Japan. But Japan is now a smaller part of the index, and "it could rebound." (In fact, he recently pointed out that "the Japanese stock market has surged about 57 percent from last year's 20-year low of 7,608 on the Nikkei.") Besides, foreign stock indexes have been improved, and are now more representative of stocks available to the public for purchase.
Still, as Fredman pointed out, whereas relatively few large-cap U.S. funds outperform a Standard & Poor's 500 Index fund, a whole lot of international funds have outperformed the foreign indexes. Exception: The European market, which is more "efficient" - stocks there may be more reasonably valued.
Virginia firm buys Praxis Solutions
Outdoor retail world's little guys embrace
Many happy returns on Tax Freedom Day
Tax pro can help you deal with IRS
Consider investing overseas