Saturday Screen: Funds That Took On the World

There's a big world out there.

That's what fund investors have said so far this year, according to the latest sales figures from Boston fund-tracker Financial Research. In February, a record $7.5 billion of fresh money flowed into international funds, compared with $7.3 billion for all of last year.

Conventional wisdom says nearly every investor should have some assets invested overseas to reduce dependence on the U.S. markets, the risks of which have been on display all week. (See TSC International Editor Andrew Morse's recent column on the benefits of international investing.)

Of course, it's a lot easier to follow those rules when foreign funds are heating up. Last year, the average Japan fund was up 121% and the average international small-cap fund rose more than 75%.

"I think people are just noticing that a lot of international funds had returns in line with many of the top domestic funds, plus the U.S. does have some pretty extreme valuations" says Morningstar's Russ Kinnel.

Unfortunately, unless you have a broad international portfolio, those high-octane funds aren't necessarily where you should start. So, this week's Saturday Screen scours the foreign stock pool looking for international funds that can serve as core holdings.

We sifted for international funds that focus primarily on large-caps, run by managers who'd been in place for at least three years and rank in the top 25% of the foreign fund category over the past one- and three-year periods, according to Morningstar. To make the cut, a fund also had to be open to new investors and have an expense ratio below the category's 1.71% average. Here's our top 10, ranked by three-year annualized return.

Core International Funds Top-ranked funds with low expenses and managers with at least a three-year tenure.
Fund	1-yr. return	3-yr. annualized return
(ARTIX)Artisan International	101%	41.7%
(FAIAX)First American International	97.2	39.8
(TWIEX)American Century International Growth	78	33.8
(POVSX)Putnam International Growth	65.9	32.6
(UNCGX)United International Growth	66.4	31.5
(AEIGX)Aetna International	68	31
(SNGRX)Sit International Growth	66.4	26.4
(ARITX)Mercantile International Equity	61.1	25.6
(AIIEX)AIM International Equity	64.7	24.1
(UMINX)Excelsior International	64.5	23.5
Data through March 29. Source: Morningstar.

Interestingly, neither of February's top-selling international funds made the cut. American Fund's (AEPGX)EuroPacific Growth had a one-year return that fell just short. (JAOSX)Janus Overseas, which took in more than $720 million in February, cleared every hurdle but one: It has been closed to new investors for about two years. No doubt current shareholders are happy with the tech and telecom-heavy fund, which is up 105% over the past year.

Overseas isn't the only fund with that idea. All of the funds on our list focus on developed markets such as Europe and Japan, and follow a growth orientation, overweighting tech and telecom stocks.

Of the group's most aggressive funds, two of the most consistent performers are (ARTIX)Artisan International and (TWIEX)American Century International. Consistency could come in handy if you're interested in owning only one international fund or you already own an international small-cap fund.

Mark Yockey, 1998 Morningstar manager of the year, has run no-load Artisan International since it launched at the end of 1995. He's beaten 90% of his peers since Jan. 1, and over the past one- and three-year periods. Aside from a misstep in 1997, he's outdone 90% of foreign funds each calendar year since 1996, too. That kind of performance came from a big bet on tech and telecom, which made up more than half the portfolio on Jan. 31.

One potential concern might be the fund's popularity, which is growing in a hurry. At the start of 1999, the fund had about $613 million, and at the end of February 2000, it had more than $3 billion. If that keeps up, assets could slow the fund a bit, although with a meager 2% cash position, inflows don't seem to be a big problem yet.

No-load American Century International has beaten its average peer year in and year out since 1995, and its 26.6% five-year annualized return beats 94% of foreign stock funds. Like their peers, co-managers Henrik Strabo and Mark Kopinski bet big on telecom stocks such as Finland's Nokia(NOK) and Japan's NTT Mobile Communications.

No-load (SNGRX)Sit International Growth also might be worth a look for aggressive investors. Co-managers Gene Sit, Roger Sit and Andy Kim have a reputation for sudden, well-timed moves.

In 1997, they hopped out of Asia and into Europe just in time to sidestep much of the Asian markets' meltdown that year. Last year, they boosted returns by doubling the fund's Japan weighting to just under 30% over the course of the year.

But what if you're not looking for funds that are this growth-oriented? That leaves you with slim pickings. About 70% of international funds currently get a growth label from Morningstar.

Broker-sold(POVSX)Putnam International Growth might be the most vanilla fund on our list. That's not to say it isn't heavily weighted in tech and telecommunications. But it also has a decent bet on value sectors such as financials, cyclicals and energy stocks. That balanced approach has helped the fund beat its average peer each year since its 1991 inception.

But because these funds have soared in a growth market, you really have to look elsewhere for a value-oriented fund. Morningstar's Kinnel suggests broker-sold (SGOVX)First Eagle SoGen Overseas.

Jean-Marie Eveillard and Charles de Vaulx have run the fund, which levies a sales charge but has below-average expenses, since its 1993 inception. They look for small- and mid-cap values, often focusing on mispriced conglomerates.

That contrarian approach has kept the fund behind its peers in recent years, but it has worked in the past. Another concern is that First Eagle, a small, New-York based fund shop, acquired SoGen last year, and the fund's highly regarded managers signed a five-year contract. There's no guarantee they'll stay on after the contract expires. That said, the fund could be a great complement to the big-cap growth funds on our list.

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