Pacific. Overseas. Japan. Pacific Basin. Far East. World. International. Global. Looking at a list of the top 25 mutual funds for the first nine months of 1986, a distinct pattern emerges. Eighteen of the 25 top-performing mutual funds (for the period between Dec. 31 and Sept. 30) had horizons broader than the boundaries of the United States, according to Lipper Analytical Services.
International investing was the name of the game this year, and there is little doubt that the consciousness of investment opportunity in other parts of the world is still being raised.
But what about 1987?
Remember what the prospectus says: Past performance is no guarantee of future returns. Some of the best and brightest mutual fund managers are heavily committed to overseas markets. Some are going no further than the United States. Everyone, it seems, has a different style. The global giants
True global fund managers examine Tokyo, Hong Kong, Singapore, Frankfurt, Zurich, Milan, Paris, Amsterdam, and London - as well as a score of emerging markets in Asia and Europe. And they look at markets in the US. Then they make their choices.
It is in the US that such personages as John M. Templeton of the Templeton Group and Peter Lynch of Fidelity see value for 1987.
Mr. Templeton recently noted that he has shifted his World Fund (which carries a maximum 8.5 percent sales charge) strongly back to the US. Only 1 percent of this fund is now invested in Japan, down from 50 percent a few years ago, Templeton says.
His approach to shopping equity markets is to be in ``the worst ones ... [because] when the outlook is good you can't buy the bargains. One of the places were the outlook isn't as good [is] America - also Canada. There are numerous bargains there.''
The liquidation of shares in the US market through mergers and stock buybacks has reduced the amount of available common stock in the past three years by 10 percent, he said, and ``we cannot rule out the possibility that a shortage of shares'' may produce the ``next bull market.''
At the same time, total cash available to fuel the US market is in abundant supply.
Mr. Lynch late last month also noted that he has reduced the exposure of his legendary $7.3 billion Magellan Fund (which has a 3 percent sales charge) from 20 percent overseas last spring to 12 percent today. Lynch is looking at secondary stocks in the US to keep the bull market going. The regionalist
But there are other fund managers who still see investment opportunities abroad. Take GT Global Growth Funds, for instance.
Based in London (with US headquarters in San Francisco), GT's four mutual funds, all of which are no-load, dominated Lipper's survey this year. GT has $5.5 billion under management. GT Pacific was No. 2 for the first nine months of the year (up 75.7 percent). GT Japan Growth was No. 4 (up 69.68 percent). GT International Growth was 11th (a 50.4 percent gain).
``One would love to say it was all superb fund management,'' says Jonathan Custance Baker, senior vice-president of GT Global Growth Funds. ``But at the top end, a number of overseas markets performed very well ... and there were gains in both stock markets and currency.''
While the yen-dollar exchange rate has been an important factor, Mr. Custance Baker says, that's not the full story. The Standard & Poor's 500 index, he points out, increased 12.3 percent in dollars in the first nine months of '86. Japan's Nikkei stock index was up 54.8 percent in yen in the same period. So even without the exchange-rate benefit, the Japanese stock market would have been the place to be.
That was '86. What about '87?
Japan still looks good, says Custance Baker, even though the economy is undergoing major changes from export to domestic orientation.
Until a year or so ago, blue-chip Japanese exporting companies (Toyota, Sony, etc.) were where investors profited. As the yen strengthened, exports became constrained; Japanese financial and banking stocks came into vogue instead. Now it's real estate and housing. Next, Custance Baker says, it will be Japanese retail, clothing, and restaurant stocks, and then Japanese domestic manufacturing.
Nonetheless, the emphasis on Japan is waning. GT's Pacific fund decreased from 72.7 percent in Japan at the end of September to 42.1 percent at the end of November. Investment in Hong Kong rose from 6.7 percent to 22 percent in the same period, and Singapore/Malaysia investment grew from 9 percent to more than 20 percent.
GT's global bellwether is its International Fund. It, too, has lessened its Japanese component. This fund shifted from 29 percent Europe, 55 percent Japan last July to 60 percent Europe, 28 percent Japan in late November.
Custance Baker says portfolio managers consider the northern European economies hubbed around West Germany attractive and stable.
GT's funds are managed out of London, Tokyo, San Francisco, and Hong Kong, and Custance Baker says GT officials occasionally visit all the companies they are investing in - ``and that doesn't just mean a hot lunch with the board chairman 1,000 miles away from the operation, either.'' The `bottom up' approach
Another particularly successful fund is Merrill Lynch Pacific, which carries a 6.5 percent sales charge. By charter it is committed to the fast-growing Asian markets. This $415 million fund, based in Princeton, N.J., was No. 3 in the Lipper survey, rising 70.2 percent in the first nine months of '85.
The fund traditionally is most heavily invested in Japan. But portfolio manager Stephen Silverman notes that since Japan accounts for more than 90 percent of the market capitalization in Asia, his fund's 60 to 80 percent exposure is actually underweighting the Japanese market.
Mr. Silverman eschews macroeconomic analysis and technical analysis of equity markets. His fund's stock picking, he says, ``is entirely bottom up.''
Silverman and his staff read the annual reports and other literature and analyze the fundamental value of a company before deciding whether to invest.
He makes ``very conservative investments in businesses that over an extended period of time I don't think will go down.'' Thus when several of the investments go up, the whole portfolio does well.
Noting the growth of the Asian economies overall, however, Silverman says, ``We're lucky to be in the right stock markets.''