This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Funds That Win in Foreign Markets

Stocks in this article: SAPARMHBUFIXHLMNXMRSAX

New York ( TheStreet) -- Investors have been dumping actively managed equity funds. In some cases, poor performances have discouraged shareholders.

During the first nine months of this year, the average active domestic equity fund trailed the benchmarks by a wide margin, according to Morningstar, and shareholders withdrew $43 billion. But it is not clear why investors are shunning active international funds. During the first nine months, foreign funds outdid the MSCI EAFE benchmark, yet investors withdrew $9 billion.

The strong showing of active foreign funds is not unusual. During the past 10 years, the average international stock fund returned 9.9% annually, outdoing the MSCI benchmark by more than a percentage point.

Much of the performance gap can be attributed to the flexibility of actively managed international funds. While the MSCI has 20% of its assets in Japan, active funds are free to avoid the country. That has provided an advantage in an era when Tokyo markets have lagged badly. In addition, many active funds have over-weighted fast-growing emerging markets, regions that have recorded outsized gains in bull markets.

Make no mistake, active funds can be volatile. Many suffered during the financial crisis. But some active funds have proved to be steady performers, limiting losses during the turmoil of 2008 and topping the benchmarks over the long term.

A solid choice is Harding Loevner International Equity (HLMNX). While the MSCI benchmark lost 5.6% annually during the past five years, the Harding Loevner fund about broke even and outdid 94% of peers.

To limit risk, portfolio manager Alec Walsh sticks with companies that can grow consistently because they provide necessities. Holdings include food makers and producers of software that helps corporate customers manage costs. "Our holdings will not be hurt badly in weak economic times because the demand for the products is relatively resilient," says Walsh.

He particularly likes software companies that have recurring revenues. A favorite holding is SAP (SAP), a German supplier of business software. The company obtains steady income by charging fees for licensing and maintaining software. SAP has high returns on equity and is increasing revenues at double-digit annual rates. Another holding is ARM Holdings (ARMH), a U.K. company that designs chips for smart phones and tablet computers. Charging licensing fees, ARM is recording strong revenue and earnings increases.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs