Investing abroad? Many happy returns
NEW YORK — More activist approach to stock picking is strolling to the mound in the mutual-fund industry.
And international mutual funds are playing a bigger role in the pitching rotation.
Investors have been hurling money into international funds at an accelerated clip. The net cash flow into international/global funds in January, $11.6 billion, was the largest monthly jump since 1994, according to Financial Research Corporation, a financial services firm in Boston. And dollars continue to ride into the funds, reflecting the wave of good returns for the sector.
Because they require more legwork and expertise from fund managers, international funds are among the most actively managed. They require a steady hand at the tiller, says Bill Rocco, who tracks overseas funds for the global department of Morningstar Inc., a financial-information firm in Chicago.
(For the record, international funds hold only non-US companies; global funds include US, as well as overseas firms.)
For run-of-the mill investors, some analysts say owning an international fund may be more important now than in the past few years, given the US stock market's volatility and lower earnings.
An international fund provides almost immediate diversification. Still, "that does not mean you should rush out and sell your slumping tech fund to buy an international fund," Mr. Rocco says. Rather, he says, you should have a "significant" position in international equities.
If you have held an international fund specializing in technology and telecom companies, you have probably done well in the past year, he says, although your funds are probably as turbulent today as US-based tech funds.
For the first quarter of 2000, the average US diversified equity mutual fund was up 7 percent, including dividends and capital gains. International funds also showed growth - up roughly 2.7 percent. But the benchmark index for global funds - the Morgan Stanley EAFE - was flat.
Within the world of overseas funds, the best gains of the moment are coming from Europe and parts of Asia, according to Morningstar.
China funds averaged a 14.8 percent gain in the first quarter. Barring unexpected developments and pending its acceptance into the World Trade Organization, China is expected to show continued rapid growth, say experts.
Emerging markets and Latin America also wound up in positive territory, both up about 4 percent for the quarter.
"We are expecting continued strong global growth of around 3 percent for 2000," says Cynthia Latta, an economist with Standard & Poor's DRI, in Lexington, Mass. By comparison, US growth should be around 4 percent this year, she says, about where it was in 1999.
The Eurozone (continental Europe) is also looking very strong she says, with growth reaching into the 3 percent range. And Latin America looks promising, she says - and Asia will be up this year, though not as much as last year, when the region rebounded.
But Japan, Ms. Latta says, will come in essentially flat for 2000, reflecting continuing economic difficulties in that nation. Japan funds struggled in the first quarter, down an average of 3 percent.
But economist Robert Barbera and his economic team at investment house Hoenig & Co., in Rye, N.Y., believe that Tokyo's commitment to aggressive fiscal and monetary policy should spur some expansion in Japan. According to a recent analysis by Mr. Hoenig, "prospects for Japan in 2000 are good," despite such mixed signals as slightly rising unemployment.
With global growth remaining strong, having an international position, including Japan, is important for most investors, says Charles Kadlec, chief investment strategist with the New York fund group J.&W. Seligman.
Mr. Kadlec is not alone. Jim Lowell, who edits the Fidelity Investor newsletter, has been a keen supporter of international funds. He urges his readers to buy into Fidelity's two Japan funds. He also recommends buys on Fidelity's Aggressive International and Diversified International Funds, as well as the Europe Capital Appreciation Fund.
When buying an international fund, experts stress, you should always check on the expense charges - with an expense ratio of around 2 percent considered normal - as well as possible redemption penalties if you sell the fund. Major fund companies often require a 3 percent or so penalty if you sell the fund before a specified time frame, such as six months.
Leading international funds
Fund name 1st qtr. 1-year 3-year
American Heritage 800-828-5050 61.5 40.0 -20.3
Dreyfus Premier Greater China R 888-338-8084 47.9 172.6 N/A Ivy European Opportunities A 800-777-6472 44.8 N/A N/A Payden and Rygel Euro Agg. Gro 800-572-9336 36.9 N/A N/A Lexington Troika Dialog Russia 800-526-0056 36.8 171.9 -11.5
Flag Investors European Mid Cap A 800-767-3524 27.2 72.1 N/A
Third Millennium Russia 800-527-9525 27.1 150.5 N/A Dessauer Global Equity 508-255-1651 26.0 59.0 N/A
Schroder Intl Smaller 800-290-9826 25.9 112.8 35.9
AMIDEX 35 888-876-3566 25.3 N/A N/A International stock average 2.6 47.7 14.2
(c) Copyright 2000. The Christian Science Publishing Society