Opportunities abound across the seas

September 22, 1996|By NEWSDAY

With the U.S. stock market flailing with every new economic statistic, investors may want to look overseas to diversify their holdings. Foreign markets do not always move in tandem with the United States, and that gives you a chance to offset some of the bumps of the domestic markets.

"Most of the asset-allocation studies we have done show that owning foreign funds can lower the volatility of mostly domestic fund portfolios," said David Shanahan, editor of the Value Line Mutual Fund Survey in New York.

"A portfolio that is half domestic and half Pacific Rim countries can be less volatile than a portfolio that is half Treasury bonds and half domestic stocks," he said. "What you really want is something out there that is doing well while your basic domestic portfolio isn't."

American investors still seem somewhat shy about investing overseas. They've invested only about 17 percent of their total stock funds in funds that invest in foreign companies. And nearly one-third of the $232 billion of foreign funds is in global funds that invest in both U.S. and international companies. Only 17 percent of those who do not own foreign funds expected to invest in them this year, according to the third annual Scudder/Gallup International Investor Poll.

The Scudder/Gallup International poll found that diversification and potential for higher gains were the two major reasons Americans invest overseas.

But the investors polled gave five reasons not to invest in foreign companies: a perceived higher risk of losing money, the volatility of foreign markets, currency fluctuations, political instability and a lack of information or knowledge about foreign investing.

Though many investors do not know where to invest overseas, there are ample options. Lipper Analytical Services Inc. lists 906 foreign funds in 11 categories, more than a third of them international funds.

The Scudder poll found global funds the most popular, with two-thirds of those surveyed owning them, while 61 percent owned international funds, which invest most of their money outside the United States. Almost one-third held regional funds, which invest in one area, such as the Pacific. Only 8 percent liked single-country funds.

International funds' approaches differ based on their fund managers' perception of various global economies, opportunities internationally and more, all forecast for several years in the future. What looks obvious to one fund professional may be anathema to another.

For example, Robert Heisterberg, global economist for Alliance Capital fund management company, likes European investments. Heisterberg said he believes earnings will accelerate there faster than U.S. businesses' profits. He thinks that the austerity measures that countries will undergo to meet European Union targets for creating a single EU currency by 1999 will ultimately stimulate the economies in Europe. "It will be painful, but they will have a recovery in 1997," Heisterberg said.

But Ron Chapman, head of international equities for Dreyfus RTC Corp. in New York, is not high on Europe. He said the consequences of the austerity programs and the turbulence brought on by the currency changes will keep growth slow. Chapman favors Hong Kong, which he said will benefit greatly from the Chinese takeover next year.

To eliminate some guesswork on which area to invest in, Charles Schwab & Co. has just announced a funds-of-funds concept for international investing. A Schwab portfolio manager, using 28 international funds in its OneSource program, will make the investments based on their global outlook. Investors will pay an additional half-percent fee for the service in addition to the fees and expenses of the funds, which usually already include a quarter-percent fee to Schwab for selling the funds in the first place.

Pub Date: 9/22/96

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