Global funds seek the best U.S., foreign investments

MUTUAL FUNDS

September 29, 1991|By WERNER REMBERG | WERNER REMBERG,1991, Werner Renberg

You're thinking of investing internationally because you're aware that average total returns from stocks in some foreign countries have exceeded 20 percent annually over the last five years -- well above the average 11.7 percent return from U.S. stocks.

But you're concerned because a few important foreign stock markets, such as Germany's, Japan's and Switzerland's, have gone up only around 5 percent annually in U.S. dollars, according to Morgan Stanley Capital International. That's less than half the U.S. rate.

Are there mutual funds, you wonder, that invest in both the most attractive foreign and U.S. stocks?

Yes. They're known as global funds, defined by Lipper Analytical Services as funds that are at least 25 percent invested in securities traded outside the United States and that may own U.S. securities as well. (International funds invest primarily in non-U.S. securities.)

Investment policies may differ among global funds. But they tend to be flexible, permitting portfolio managers to comb the world for stocks that promise the greatest long-term growth. Dividends are not important.

How well global funds do depends not only on industry and company selection, but also on the currencies in which their stocks are denominated.

Foreign stocks can rise in local currencies, but these gains can be slashed in terms of U.S. dollars when the greenback rises in value, as occurred in Europe this year.

Of some 50 global funds monitored by Lipper, one-third had been in operation for five years as of June 30. The managers of five -- including Scudder Global Fund, in business 23 days short of five years -- selected securities and currency blends well enough to beat Morgan Stanley's World Index annual growth rate of 10.1 percent for the period.

You may wish to look into one of these five.

First Investors Global Fund, which heads the list with an average annual total return of 18.1 percent for the five years, has a new manager. Daniel Duane, who managed the fund for almost all of the period, left last December to take over two Prudential global funds. His successor is Jerrold Mitchell of Wellington Management Co., which has long been investment adviser for a number of funds -- such as Windsor and others in the Vanguard Group -- but never a global fund.

Mitchell says that he has essentially maintained Duane's geographic allocation of the portfolio, keeping it in line with the weights given each country in the Morgan Stanley index. But he has reduced the Japanese portion and increased those of the United States and Germany. He also has sold some stocks of smaller companies, while adding more blue chip stocks.

Portfolio counselors running the American Funds Group's New Perspective Fund employ a bottom-up approach, seeking stocks that are good values regardless of currency. This has led to overweighting Germany and the Netherlands in comparison with the index and sharply underweighting Japan. Large companies that dominate their industries make up a significant share of the portfolio.

Cash reserves, most recently reported around 15 percent, exceed those of other leading funds.

At Oppenheimer Global Fund, Kenneth Oberman takes a riskier approach, being fully invested in stocks and even borrowing money for investment to supplement his shareholders' capital. He tries to identify long-term economic trends and the companies -- preferably small and medium -- likely to benefit the most.

When playing one of the trends -- growth in health care, for example -- Oberman invests in some of the same stocks he buys for another fund he manages, Oppenheimer Global Bio-Tech. That fund was the nation's No. 1 fund for the 12-month period that ended Sept. 19, with a total return of 115 percent.

Themes also characterize the approach of William E. Holzer, manager of Scudder Global, the only no-load fund among the leaders. One example: well-capitalized banks -- including two Swiss banks that are among the world's few banks still rated triple-A -- that he believes are more likely to benefit from economic expansion.

He holds virtually no cash, preferring to be about 10 percent in bonds.

John M. Templeton, still managing portfolios at 79, applies a value-based approach to the $2.7 billion Templeton Growth Fund. It's one of six Templeton global funds that together account for more than half of the group's $14.7 billion in assets. The largest is the $4 billion Templeton World. Templeton Smaller Companies Growth Fund has set the hottest pace this year, leading all global funds with a 34.2 percent return.

Given this year's hot performance by small company growth stocks, fund companies are stepping up their efforts to channel investors' money into such securities on a global scale.

Scudder Global Small Company Fund was launched recently, and on Oct. 1, American Funds will reopen SMALLCAP World Fund briefly to new and current investors.

When offered to the public in April 1990, SMALLCAP attracted $670 million -- more than could prudently be put to work. It was closed and, except for a brief period, has remained so. With all but 8 percent of its $800 million assets invested -- about two-thirds in the United States -- management says it can use more money to invest.

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