|
|
|
|
Fund analyst picks
|
With world funds, pick carefully -- very carefully
|
World funds often dont make a lot of sense because of portfolio overlap and other issues. Here are some tips on choosing wisely, plus four funds that are worth considering -- with care.
|
By Brian Portnoy
|
|
|
It's hard to make a general case for world-stock investing. Very few of these funds make savvy country asset-allocation decisions, so most investors would do best by choosing their own mix of U.S. and foreign equity funds -- and can typically do so at less cost than often overpriced world-stock options. Plus, most of them deliver substantial overlap with what the typical investor already owns, so it's also important to double-check whether a world-stock choice has the potential to add value to one's portfolio.
Check out the fund's R-squared (a statistical measure of correlation with the S& P 500) to gauge whether it can diversify a large-cap portfolio; the lower the R-squared, the better.
What's more, investors need to be particularly sensitive to performance chasing in the group. The category is broadly defined, meaning that it includes large-growth and small-value options, and everything in between. Relative performance over the past few years -- skewed strongly in favor of small- and mid-value offerings -- has had as much to do with a manager's style than actual stock-picking ability.
Investors might be drawn only to recent winners, but that would be a mistake. Markets are prone to rotate among investment styles, and an eventual economic recovery bodes relatively well for hard-hit large-growth and -blend options. That's already partly true in 2003 so far. The average fund in the category is up about 0.5% through April 25, and many growth-oriented funds have gained even more -- a far cry from 2002's double-digit losses for such vehicles.
One fund that has rebounded as nicely as we expected is Scudder Global Discovery (KGDAX). The hard-charging growth fund has gained 3.4% this year and ranks in the group's top 3%. However, its manager of many years, Gerald Moran, has recently stepped down, and the new skipper isn't nearly as experienced. Thus, Morningstar has removed it from our list of Fund Analyst Picks.
American Funds New Perspective (ANWPX)
This is one of the few world-stock offerings that stacks up as core-holding material. Its focus on stocks such as AOL Time Warner (AOL, news, msgs), Pfizer (PFE, news, msgs) and Vodafone (VOD, news, msgs) gives investors exposure to global market leaders. It invests primarily in growth-leaning companies, but the management team's attention to price multiples, a broadly diversified portfolio, and a comparatively high cash stake have kept volatility in check. Its long-term returns are among the category's best thanks to consistent out-performance rather than the occasional off-the-charts run. It finishes nearly every calendar year in the category's top half.
Oppenheimer Global (OPPAX)
Manager Bill Wilby has more than earned his place among the group's elite. Since late 1992, his fund has far outpaced its average rival. Theme-based, growth-oriented stock-picking has been the key to such success. New technologies, mass affluence, and the aging population are among winning themes. Despite exposure to growth stocks and a healthy dose of mid-caps, Wilby doesn't ignore risk. His move out of pricey tech stocks in early 2000 was spot-on, for example. The fund did suffer substantial losses in 2002, but we expect it to outperform in a healthier market for global equities.
Van Kampen Global Value Equity (MGEAX)
A tilt toward value stocks has aided in this fund's relative success during the protracted market decline; its near-11% gain in 2000 was particularly uplifting, while its losses in 2001 and 2002 were less than average. But it's more than a bear-market baby: Over the long haul its team of managers has shown an ability to excel in various markets. (Manager Frances Campion has an even longer record at top-rated Morgan Stanley Institutional Global Value (MSGEX).) The one major exception to its winning streak took place in 1999, when the fund's value discipline caused it to lag during the tech and telecom-led rally.
Oakmark Global (OAKGX)
This fund is an aggressive value choice. Its managers take a deep value approach, so they're not looking for relatively cheap stocks. Instead, they prefer highly out-of-favor companies whose stocks are trading at very steep discounts to their estimates of intrinsic value. The fund's portfolio has a go-anywhere quality, so its geographic allocations aren't fixed, and it also invests across the market-cap spectrum. In fact, its heavy emphasis on small and mid-caps separates it from the pack. So do results: Its since-inception return is among the category's best. That said, its strategy invites a lot of volatility, so be prepared for a wild ride.
2003 Morningstar, Inc. All Rights Reserved.
|
|
|
|
