Take Your Portfolio Abroad

It’s one of the best New Year’s resolutions an investor can make: Don’t stay too close to home. To get the most mileage out of your buck, your portfolio must include a trip abroad.One of our readers, Kal Anson, is beginning to get the message. In a recent e-mail, he wrote: “Dan, this has been a lousy year for me in the market and I only own quality stocks. While I’m down, my limo driver is up, about 14%, he tells me. The main reason, he says, is that his foreign investments, which make up about 30% of his stock portfolio, are doing just great. I have never bought a foreign stock or a foreign fund because I distrust overseas markets. Am I wrong?”Answer: Absolutely. The performance figures show you’re overlooking a ripe money-making arena, which includes many of the world’s most prestigious companies. Over the past three years, for example, the average return for an international stock fund is an annualized 21%, nearly double the S&P 500’s return of about 12%.Chiefly responsible for such superior performance is the weakening of the American greenback, which boosts returns from foreign funds. But even with the greenback up this year, economic growth in many overseas markets is strong, if not sizzling, and the average international fund is far outstripping its American counterpart, with about an 8.1% gain.It is no wonder American investors have been shoveling money abroad, with foreign securities accounting for nearly two-thirds of all American equity fund inflows.One expert on the subject is Frank Holmes, chief investment officer of U.S. Global Investors, a San Antonio, Texas-based family of mutual funds with $3 billion in assets under management, $1.7 billion of which is invested overseas. Three of the firm’s funds that invest abroad are performing especially well this year: Global Resources, up 38%; the Eastern European Fund, up 32%, and the China Fund, up 10%.Mr. Holmes reckons 25% of a stock portfolio should be centered in overseas investments, a diversification strategy that lowers volatility, he notes. He’s particularly keen on the faster-growing but somewhat riskier emerging markets, notably those with greater economic growth than in America. Chief among them are South Korea, Russia, China, Argentina, and Poland.In a number of cases, he points out, you’re also talking about price-earnings ratios that run 25% lower than those in America, price-to-book values that are also 25% lower, and dividend yields that are 35% higher.Elaborating on some of his bullish reasoning for his favorite overseas markets, Mr. Holmes notes these individual developments:* South Korea has contracts to build $15 billion worth of liquid natural gas tankers.* Russia’s president, Vladimir Putin, is putting into effect policies designed to build infrastructure that will allow the economy to grow. He’s also creating a huge trust from oil royalties to ensure surplus cash that will enable the infrastructure to keep growing.* Argentina’s ports are shipping $15 billion worth of goods a year, and the country boasts an improving monetary policy.* China is developing policies designed to create new jobs for 15 million people a year. Enhancing China’s appeal is its ultracompetitive labor advantage, what with its labor outlays averaging 15% of a company’s costs. (In America, they run about 50%.) By the same token, Mr. Holmes says he wouldn’t buy shares in Chinese manufacturers because “there’s no profit margin.”Two foreign stocks he especially favors are Hong Kong-based telecommunications biggie China Mobile and South Korea’s Hyundai Motor Corporation, the fastest growing automaker in the American market.The secret to investing in a foreign country’s stocks, as Mr. Holmes explains it, is that when its currency is rising faster than the price of its commodities, stay away. And when its currency is falling and its commodity prices are rising, get long, he says.Global money manager Jim Rogers of Rogers Holdings views Canada as one of the world’s soundest economies and rates its currency as particularly attractive – the Canadian dollar recently shot up to a 14-year high. He also likes stocks of European airlines, notably Lufthansa, S.A.S., and Iberia. He recently boosted his S.A.S. and Iberia holdings.Another advocate of overseas investing is Richard Moroney, research chief of Dow Theory Forecasts, a monthly newsletter out of Hammond, Ind. Given their faster growth in recent years, investors shouldn’t be strangers to foreign funds, he says. He offers these tips in overseas investing: Avoid funds from overheated markets, particularly if they favor only one or two countries and regions. And unless you have a strong feeling regarding a particular market, single country funds are appropriate only for speculators.The newsletter’s two favorite foreign funds are UMB ScoutWorldWide, a diversified large cap stock fund that focuses on developed markets, and T. Rowe Price International Discovery, which invests in small- and medium-cap names.

Take Your Portfolio Abroad

Take Your Portfolio Abroad

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