For balanced portfolio, take stock of the world

PERSONAL FINANCE

April 25, 1993|By Copley News Service

Investors who overlook the stocks of overseas companies may be missing two-thirds of their opportunities.

U.S. issues represent little more than one-third of the world's total market in stock issues, says Charles Brandes, president of Brandes Investment Management Inc.

Mr. Brandes, who manages a $650 million portfolio, has put about two-thirds of that in foreign stocks. His main clients are large pension funds, but he says international opportunities are available to individual investors as well.

"Growth is abroad," he says. "It was in Japan; now it is in Taiwan, Singapore, South Korea; in the future it will be in Thailand, even Vietnam. And the European Economic Community, if they get it together."

Mutual funds offer an easy way for investors to get involved in the stocks of foreign companies. Companies such as Baltimore-based T. Rowe Price offer a broad range of funds.

So-called international funds invest solely in foreign companies; global funds mix in U.S. stocks. And increasingly, the funds are focusing on specific countries or regions, such as Southeast Asia.

(To get a look at these funds, check the mutual fund tables found in this section of The Sun. Funds that hold a large percent

age of foreign stocks are marked with an "I" for international or a "GL" for global under the listing of objectives.)

Investors also can buy pieces of the foreign companies directly, through American Depository Receipts, which are traded on U.S. stock exchanges. ADRs, which represent shares of a foreign stock, are issued by U.S. banks that take possession of the securities. The banks convert dividend payments into dollars for ADR holders and deduct foreign withholding taxes.

ADRs give international investors "a little more guarantee, because those companies have to meet certain accounting standards," says Janet Lowe, author of the book "Keys to Investing in International Stocks" (Barron's). For example, German companies that made only limited disclosures have to provide more information when moving into the U.S. markets, she says.

Some investors dismiss investments in overseas companies as risky, but Mr. Brandes contends that many of them are more conservative than their U.S. counterparts.

For example, Swiss drug stocks typically have a price-to-earnings ratio less than half that of U.S. companies, he says. (Dividing a share's price by the company's earnings per share is a basic way to compare stock prices.)

Ms. Lowe suggests, "Think of brand names known worldwide" for investment potential. Companies such as Coca-Cola, Boeing, Disney, Ford, Citicorp and Philip Morris are "so multinational that they are not dependent on the U.S. economy, which is one of the things an investor would like to achieve."

Ms. Lowe suggests in her book that at least 10 percent but not more than 20 percent of an investment portfolio be placed in foreign markets, but not just foreign stocks.

"There are good foreign bonds, too, but it takes more research to do bonds," she says.

Global investors must be patient.

"People invest in real estate and hold it for 10 or 15 years without thinking anything of it," says Glenn R. Carlson, Brandes managing director. He said his company typically holds a stock for three to four years.

Investors can find information about foreign companies in financial periodicals such as the Wall Street Journal, Barron's, the Financial Times and the Economist.

Stock exchange-listed companies often provide research reports, and some investor newsletters specialize in foreign issues.

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