Investing Overseas: Some Fund Ideas

A year like this one reminds us of the need for foreign investing. To be sure, foreign stocks don’t provide the defensive protection they once did. The global markets are more in sync than they’ve ever been, which means that when markets slide in the U.S., they can often be expected to slide elsewhere as well.

But foreign stocks can still provide offensive punch, as evidenced by the breakout performance of emerging-markets funds in the second quarter and first half of this year.

Here are some funds that invest some or all of their assets in the major regions. Some of the funds listed here also appear in the “Morningstar’s Top-Rated Funds” charts beginning on S12.

Note: Each of the three charts was assembled using Morningstar’s database of international stock funds. To identify funds that invest in Europe, international funds that happen to invest at least two-thirds of their assets in Europe were considered in addition to Europe funds. From this group, funds that did not beat at least 50% of their peers year to date and over the last three years were eliminated.

To identify funds that invest in Latin America or in Asia, international funds that happen to invest a plurality of their assets in either of those regions were considered in addition to Latin American stock funds or Asian funds. Funds that did not beat at least 50% of their peers over the last five years were also eliminated.

In every case, funds that were more volatile than their peers were eliminated. Volatility was determined by two measures: “standard deviation,” which measures how widely a fund’s returns vary over time, and Morningstar’s proprietary “risk” score, which measures downside volatility.

In the Europe fund screen, portfolios that did not have a Morningstar “category rating” score of 4 or higher were eliminated. In addition, funds with either front-end or deferred loads (sales commissions) were tossed out.

However, because there were fewer Latin American stock funds and Asian stock funds to start with, funds that charge sales commissions were not excluded in those screens.