International funds: Use discretion

Andrew Leckey

June 30, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

The world is your oyster in 1993 investing.

International stock mutual funds that put money in equities of many different countries have been booming, helped in part by the robust Japanese stock market.

The problem is, that oyster wasn't very cooperative for several years. International funds were dismal performers until this recent comeback, which leaves lingering concern about volatility.

Many investors who have discovered these funds mistakenly consider them generic. They should keep in mind that the world is a diverse place, and favored regions, industries and stocks vary among fund managers.

From the top-performing international funds of 1993 listed later in this column, only three have been around long enough to have three-year track records. Average annual return for one of those is down a fraction for that period, another is up a fraction and the third is up just 1.53 percent.

"Any fund that can increase 30 to 40 percent over a five-month period is a terrific way to add real performance 'pop' to a portfolio, but international funds shouldn't constitute more than 10 to 15 percent of one's holdings," said Don Phillips, publisher of the Morningstar Mutual Funds investment publications.

"Let's face it: Over the last three years, international funds, and .. Japanese funds in particular, have been awful places to be."

This year, stocks such as Brazil's Telebras telephone utility, up 50 percent, helped Templeton Developing Markets Trust.

"Our largest country weighting is Brazil, followed by Turkey, with large holdings in Malaysia, the Philippines and Greece," said Mark Mobius, portfolio manager of the fund, up 23.8 percent.

"Because the investment action is going to be in emerging markets in coming years, our best investor would be a 6-month-old baby whose parents are investing for his college education."

Meanwhile, Svenska Handelsbanken, a Swedish bank, has risen percent for Oakmark International Fund.

"I'm not invested in Japan at all, but in Singapore and Malaysia, and about 35 percent of the portfolio is in Europe because it looks cheap right now," said David Herro, portfolio manager of that fund, up 23.49 percent.

"We use forward contracts to hedge our European stock exposure, a necessary form of protection because there's a strong probability the German market will fall substantially in the next six months."

Turning to Asia, Japan's Tohoku Electric Power jumped 44 percent for Fidelity Overseas Fund.

"A big factor has been Japan, where I've had 25 percent of the portfolio, and European financial firms also contributed," said John Hickling, portfolio manager of the fund, up 22.71 percent this year, and an average of 1.53 percent for the last three years.

"I still like most of the European markets, based on lower interest rates."

L Indexing, popular in domestic funds, is a good overseas bet.

"Ours is an index fund with positions in nearly 1,000 stocks and a strong 36 percent weighting in Japan, which has really done well," said Elizabeth Palmer, portfolio manager of Colonial International Equity Index Trust, up 23.25 percent this year but down a fraction in three-year average annual return.

Top diversified foreign stock funds in total return this year, according to Morningstar, are:

* Govett International Equity Fund, San Francisco; $30 million in assets; 4.95 percent load (initial sales charge); fund started January 1992; up 28.34 percent.

* Templeton Developing Markets Trust, St. Petersburg, Fla.; $357 million in assets; 5.75 percent load; started October 1991; up 23.8 percent.

* Oakmark International Fund, Chicago; $272 million in assets; no load; started September 1992; up 23.49 percent.

* Colonial International Equity Index Trust, Boston; $8.3 million in assets; 5.75 percent load; started July 1986; up 23.25 percent.

* Govett Emerging Markets Fund, San Francisco; $35.6 million in assets; 4.95 percent load; started January 1992; up 22.92 percent.

* Fidelity Overseas Fund, Boston; $1.94 billion in assets; no load; started December 1984; up 22.71 percent.

* T. Rowe Price International Discovery Fund, Baltimore; $227 million in assets; no load; started December 1988; up 21.66 percent.

* Acorn International, Chicago; $246 million in assets; no load; started September 1992; up 20.77 percent.

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