A FEW months ago, George Noble had a telephone call from a shareholder in the Fidelity Overseas Fund, the $2 billion international mutual fund he manages. ``She wanted to know why the Overseas Fund only went up 8 percent in the second quarter,'' Mr. Noble recalled in a recent interview. He tried to point out to the shareholder that not many banks are paying an 8 percent interest rate for a whole year, let alone three months.
That call illustrates one of the problems Noble is having. In 1985, its first full year of operation, the Fidelity Overseas Fund did extremely well, posting a 78.7 percent gain. This year, by all normal standards, the fund is still a high-flier, with a 68.7 percent gain in the first nine months.
Much of that gain was due to the decline of the United States dollar and the continuing boom in overseas equities markets.
In recent months, however, the dollar has not been falling as fast, some foreign stock markets have dipped, and international funds, including Fidelity's, have had a tougher row to hoe.
``Since February of 1985, we had the best of all worlds: bull markets everywhere and falling currencies abroad,'' Noble said. ``About a third of our gain last year was from currency, the rest from the markets.''
The markets have certainly done their part. An important international stock market indicator is the Europe-Australia-Far East index, or EAFE, which measures the performance of the major stocks in those regions. Last year, the index was up about 53 percent. This year it's up more than 50 percent again.
``These are very unusual times,'' Noble observed. ``You're talking about 50-percent plus rates of return two years running. I think that's pretty unusual. Yes, the rate of performance for international funds is slowing. But I don't think international funds are anything to be ashamed about. I just think we're back to more normal times.''
While he does not expect a weak dollar to keep boosting his fund forever, Noble doesn't expect the greenback to become the strong man of the currency world anytime soon.
``I remain fundamentally bearish on the dollar,'' he says. ``Despite the fact that it has risen or at least stabilized in the last three months. It stabilized about the time the price of oil stabilized.''
But lower oil prices benefit the economies - and currencies - of other countries more than the US, he notes. This is especially true in Japan, which has no oil reserves of its own, and slightly less true of Europe, where there are limited reserves.
``There are still fundamental problems beneath it all which suggest the dollar is going to head lower,'' he said. ``If you come back a year from now, I think the dollar's going to be lower. How much lower, I don't know. I'd say about 10 to 15 percent lower. The US trade deficit and budget deficit are still a big problems. I think inflation in the United States, relative to the rest of the world, is going to pick up.''
The declining dollar, Noble says, will make it more imports more expensive in America, adding to inflation.
While he does not expect the dollar to gain much strength, he does not think it will resume the free fall of last year and early this year. This will make stock-picking skills even more valuable. ``I think from here on, the proportion of gains [in international funds] will increasingly come from the underlying securities,'' he says.
The majority of the securities Noble owns are still in Japan, and for the present, he intends to keep it that way. In Europe, Noble is more diversified, though he has put 10 percent of the fund's money in France.
``We're very bullish on the French market,'' he says. ``French corporate profits will be up this year almost 20 percent, next year probably another 15 percent.'' The biggest stock in the fund's portfolio, is Michelin, the French tiremaker. It has been aided by falling oil prices and accounts for about half of the fund's stake in France.
The French stock market has also been helped by the reversal of the socialist nationalization program and the effort to get more Frenchmen involved in stock ownership, as well as falling oil prices, he points out.
Commenting on the fact that 53 percent of Fidelity's overseas money is in Japan, the portfolio manager of another foreign fund recently said Noble had ``bet the farm on Japan,'' which resulted in some losses when the Japanese stock market fell in October. A few weeks later, however, the Japanese market, as measured by the Nikkei average, was again approaching new records.
``Did I bet the farm on Japan?'' Noble asks. ``We made a heavy commitment to the Japanese market. But I'd like to put that in perspective. We started the year with 18.9 percent of our assets in Japan.
``When the price of oil broke in January, we quickly moved to increase our Japanese exposure, because Japan stood to be the single biggest beneficiary of the major industrialized nations of lower oil prices.''
The earlier 18.9 percent figure represented a substantial ``underweighting,'' Noble says, since the value of Japanese stocks represents more than half of the EAFE index. That being the case, his current allocation is just about right, he figures. ``If you have a 50-55 percent weighting in Japan, in that context, it does not represent a major bet.''
How Noble selects stocks in Japan illustrates some of the thinking an international fund portfolio manager fund goes through.
``We own domestic-oriented companies in Japan. Our three biggest industry concentrations are real estate, railroads, and insurance stocks. These are all companies that are extremely undervalued in relation to their true net worth.
``But if you look at our trade deficit and Japan's big trade surplus, the rest of the world has more or less said to Japan, `We've had enough, you can't go on generating all your growth by promoting your export industries. You cannot export your employment to us. You, Japan, will have to pursue a more balanced approach toward achieving growth in your economy. That will mean more stimulation of your domestic economy.'''
Japan will respond positively to some of this outside pressure, Noble believes, which will help its domestic housing industry, its real estate business, and its railroads. One stock in the Fidelity portfolio, Tobu Railway, was bought at about 300 yen per share early last year. Since then, it's been as high as 984 yen and although it is currently around 820, Noble believes Japan's efforts to boost the domestic economy will help push Tobu's stock well above its historic highs.
``I think this stimulation of the domestic economy will bring out the values of these companies. If Japan is going to promote real estate development, for instance, who are the companies that are going to benefit? It will be the companies that own real estate.
``In Japan, it's an accounting practice to keep assets on the books at acquisition costs, or historical costs,'' Noble notes. ``So if a company owns a piece of property it bought a long time ago, the book value of it is low relative to its current market price. The price of real estate has gone up by a factor of 42 in the last 30 years.''
Although Noble is quite comfortable investing the fund's money - and some of his own - in foreign stock markets, he does not recommend a deep dive into these markets for novice investors. He agrees with those who recommend putting no more than 15 or 20 percent of one's investment assets in international funds.
``If you spend the time, the payoff from markets abroad is much greater. The markets are less efficient, and there are greater opportunities to make money. The risks are greater, so this should not be one's only investment, but I think it's a sensible diversification tool. So yes, I think 15 to 20 percent is reasonable.''