Foreign Stock Funds Once Again Finding Favor
Fidelity Investments, the Oakmark Funds and Robertson Stephens are among the investment companies that are still finding enough stock-market bargains to justify introducing new mutual funds. But it’s in foreign markets where much of their bargain-hunting efforts are directed.
All three firms have unveiled foreign-oriented stock funds in recent weeks. With names such as the Robertson Stephens Global Low-Priced Stock Fund and Oakmark International Emerging Value, a few of the new offerings actually sound like they expect to find companies trading for reasonable prices.
That shouldn’t come as any major surprise considering how badly foreign stocks have lagged the American stock market this year during its relentless march past 5,000 on the Dow Jones industrial average.
“During the last 18 months, and especially over the past three, foreign markets have been deeply out of favor--emerging markets in particular,” says David Herro, co-manager of the new Oakmark International Emerging Value portfolio in Chicago.
Fidelity introduced six foreign country and regional funds Nov. 1 and already has attracted a combined $100 million in assets. The portfolios target stocks in France, Germany, Britain, the Hong Kong/China region and four Nordic nations, plus small companies in Japan.
“These are parts of the world where our investors have told us they’re interested,” says Neal Litvack, a Fidelity executive vice president in Boston. “As the U.S. market hits new highs, some of the more sophisticated investors are looking elsewhere for growth opportunities.”
It’s hard not to view U.S. stocks and the mutual funds that target them as pricey, at least compared to their foreign counterparts.
The typical U.S. growth-stock fund is on course to outperform the average international portfolio by about 20 percentage points in 1995, according to Morningstar Inc. of Chicago. That would give U.S. funds the edge in six of the past seven calendar years. By contrast, international funds did better in five of the six previous years, from 1983 through 1988.
Herro says he’s worried that the U.S. market could be nearing a peak given the increasingly speculative nature of trading in companies such as Netscape, a newly public technology company whose stock already fetches in excess of $100 a share. He contrasts that with the situation for Volvo, the Swedish car maker, whose shares trade at a price roughly equal to the company’s operating profit.
U.S. stocks are relatively expensive in terms of yields, price-earnings multiples, price-cash flow ratios and other measures, Herro believes.
Investors would be wise to maintain a modest foreign footing anyway from a diversification standpoint. Foreign companies weigh in with two-thirds of the world’s stock-market capitalization or worth, and there’s usually a couple of foreign nations performing better than the U.S. market.
The Value Line Mutual Fund Survey, a New York publication, suggests that investors consider putting 20% to 30% of their stock allocations into foreign-stock funds.
“Foreign stocks haven’t been bid up as much as domestic stocks,” reads a recent Value Line commentary. “They aren’t flapping their wings mightily, as our domestic stocks are, to achieve dizzying returns.”
One scenario that might be discouraging some people from foreign-stock investments is the potential that the dollar might rise from what many view as unsustainably low current levels. A higher dollar can erode the values of foreign funds owned by U.S. investors, just as a declining greenback boosts those values.
But Thomas Robinson, manager of international investment strategy at Merrill Lynch, warns Americans not to under-invest in foreign markets even if it appears the dollar might strengthen. That’s because a stronger dollar also would tend to make foreign exports more competitive, stimulating overseas economies to a greater degree than the currency factor would hurt, Robinson says.
With U.S. stocks hovering near record territory, many investors may feel they’re stuck between the rock of sitting tight with their domestic stock funds and the hard place of fleeing into bonds or cash.
But there’s also the third--and arguably less drastic--alternative of merely shifting some assets from the high-flying U.S. market to some laggard foreign bourses.
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USAA Investment Management Co. of San Antonio has introduced three new mutual funds and repackaged two existing ones into a series of five asset-allocation portfolios, each featuring quarterly rebalancing to stay within prescribed target ranges of stocks, bonds and cash.
The two existing funds are USAA Cornerstone Strategy and USAA Growth & Tax Strategy, formerly known as the company’s Balanced Portfolio. Joining the lineup are Growth Strategy, Balanced Strategy and Income Strategy.
Of the five, Income Strategy represents the most conservative choice, with Growth Strategy and Cornerstone Strategy most aggressive.
USAA ([800] 382-8722) doesn’t levy a sales charge on its funds, for which the minimum investment is $3,000 on taxable accounts and $1,000 on individual retirement accounts.
