If you're a Costco kind of shopper, then you like to buy a variety of products, in one place, at low cost.
Now shift that mentality to international investing. If you're a superstore international investor, then individual shares of foreign ordinaries (shares issued on local foreign exchanges) or even ADRs (the U.S. form of foreign shares), are not for you. Foreign ordinaries are more expensive than U.S. shares. And individual ADRs don't provide the diversification that investors often seek when hunting overseas.
So while the first
two
parts of my series on online sites and services for international investing focused on ordinaries and ADRs, today's column is geared toward the superstore overseas shopper. Four main vehicles I analyze, and good info sites for them, are regular mutual funds, closed-end funds, exchange-traded funds and "folios," which are preset baskets of stocks you can buy cheaply at
FOLIOfn.com. The last two I find most intriguing. My final installment in this series will be about good info and news sites for international investors.
As always, please let me know about your experiences with an email to
whatworks@thestreet.com. Mutual Funds
One of the easiest and most popular ways to invest overseas is through regular mutual funds, like a
(FWWFX Quote)Fidelity Worldwide or
(AIIEX Quote)AIM International Equity fund. The benefit (or downside, depending on your point of view) of these funds is that they mostly focus on a region, like Europe or Latin America, rather than a specific country. Two exceptions are Japan and Canada, which each have several funds dedicated to them.
If you're interested in a regular international-type fund, I don't have any under-the-radar sites to reveal. I'd just start with the research and fund profiles available at
Morningstar.com, the grand-daddy of fund sites. Also, my colleague
Catherine Valenti recently completed a series on international funds, accessible
here. Closed-End Funds
Closed-end funds have been the traditional way for investors to get country specific. You can buy, say, a Mexico fund or a Korea fund. If closed-end funds were the only way to play a country, I might have more room in my heart for them. But the advent of exchange-traded country-specific funds and "folios," (discussed below) quashes any fond sentiment.
Closed-end funds are similar to mutual funds in that you get an active manager -- a stock picker. And the expense ratios are about the same, around 1.6% for both closed-end and regular equity funds, according to
Wiesenberger, Thomson Financial.
The difference is that closed-end funds trade as stocks. There are a set number of shares that buyers and sellers can exchange throughout the day, just as they would shares of
AT&T. That means your success with a closed-end fund depends in part on whether
other investors think you've made the right bet and follow you into the U.S. fund shares, thereby bidding up the price, rather than just on whether your fund manager picks winning stocks overseas.
This structure creates what's known as a premium or discount to the net asset value of a fund. Net asset value is the value of the underlying portfolio of stocks divided by the number of shares. The relationship between where the closed-end fund shares trade and the fund's net asset value represents the premium or discount. The median discount on international closed-end funds was 18.2% as of March 9, according to fund tracker
Lipper. That's an improvement from a 21.8% median discount on Dec. 22, 2000.
While some betting types might like the idea of buying closed-end shares at a "discount" to NAV and watching the stock price rise as other investors see the light, I think the feature is a distraction. It's not enough to be right about the country and manager you choose. Other closed-end fund investors have to buy into this fund with you.
This all said, if you are a closed-end fund junkie, the info site of choice is
www.cefa.com, run by the
Closed-End Fund Association.
The site has daily performance tables, deep info on specific funds, detailed commentary on the industry, and excellent explanations of closed-end fund features. It even has a closed-end fund screener, though it would be better if you could screen by either equity or fixed income.
Exchange-Traded International Funds
Exchange-traded international funds are like closed-end funds in that the shares are, well, exchange traded. But these funds are not actively managed; rather, they track a basket of previously selected stocks. Because they're "passive" with less trading, they generally have lower expense ratios than closed-enders -- currently under 1% -- and lower taxes. As with closed ends, investors have to pay trading commissions.
The ETF international and country funds, products of
Barclays Global Investors, are called
iShares. They track indexes maintained by
Morgan Stanley Capital International and
Standard & Poor's and are traded on the
American Stock Exchange and the
NYSE.
As for the active/passive management issue, I suspect most investors seeking to invest in a country want exposure to that
country, rather than a particular manager. If so, ETFs are a cheaper, simpler way to achieve the goal.
What's also nice about iShares is that they are designed to skirt the premium/discount issue. Through arbitrage -- redeeming shares of the ETF for the underlying shares of stock -- institutions generally keep the price of the fund in line with the NAV.
For ETF info, I prefer the
www.iShares.com site to
Amex.com. It's got all the holdings of a fund, not just the top-10 you'll get at the Amex site. The charting features on the iShares site are superb. And the daily performance list includes percentage changes (see symbols and current prices under the Data & Tools tab), not just price as at Amex, so you can get a quick sense of which countries are hot.
Finally, as one reader pointed out, prospectuses for these funds on the Amex site are outdated. Still, the Amex site does supply expense ratios and history of taxable distributions key facts I did not find at iShares.com.
The "ETFZone" at
indexfunds.com has some helpful articles here, but the performance data is old, monthly. Morningstar also has some good articles. And
TSC offers a weekly performance
summary on Saturdays, if that's a time perspective that interests you.
Folios
Another way to capture some diversification at low cost is with "folios" at
www.foliofn.com. For $29.95 per month, you can invest in three preset folios of stocks representing specific investment goals. The site offers 19 international folios, listed
here, representing either single countries like Korea or broader areas like Western Europe. Each folio includes a selection of ADRs for that country. You can either buy and hold the set selection, or you can tweak it by adding or selling stocks during the firm's twice-daily "window" trading periods. That trading is included in your $29.95 monthly fee.
If the site changes the composition of a preset folio you've already purchased, you'll get notified. It's up to you whether you want to make the same change to your own account.
International folios, which range in size from four to 30 ADRs, don't offer quite as much diversification as ETFs. But you can tailor your own folio if you're so inclined. And better than ETFs: You control your own capital gains by deciding when to sell.
Chat Time
Thursday afternoon, please join me and my colleague
Mark Ingebretsen for a chat about online sites and services. We'll talk about international investing, as well as using online brokers and sites in general. It's here on
TSC at 4 p.m.
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Jamie Heller
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