Global equity funds not only have outperformed their benchmarks, but also the U.S. stock market, as their stock-picking flexibility enables managers to go anywhere in the world for the best investments. But some fund managers have been focusing on their home turf.
Artio Global Investors
is among companies putting an emphasis on world funds. Formerly known as
Julius Baer Americas
, the company is best known for its flagship
Artio International Equity Fund
, which returned 5.6% annually during the past decade, outdoing 98% of its foreign large-blend competitors.
Julius Baer International Equity
until last year, the fund delivered outsized returns by following a contrarian style. Early in the decade, portfolio managers Rudolph-Riad Younes and Richard Pell made timely bets on increasing prosperity in Eastern Europe, buying banks in the region. The managers also scored gains with Turkish stocks.
Artio International Equity is closed to new investors, and the company is trying to lure investors to
Artio Global Equity Fund
. "We expect that the next growth leg at our company will come from the global fund," portfolio manager Keith Walter says.
Both the global and international Artio funds follow similar eclectic approaches, but lately the managers have turned decidedly cautious. A year ago, the global fund had 25% of assets in emerging markets. Worried about risks, the managers now have only 2% of assets in the emerging markets. Instead, the global fund is focusing on the bluest of U.S. blue chips, including
Johnson & Johnson
. "This is a time to stick with dominant companies that offer the most safety," Walter says.
Another fund with a big stake in U.S. giants is
Harding Loevner Global Equity
, which returned 1.7% during the past 10 years, exceeding 74% of competitors. Portfolio manager Alec Walsh seeks companies with stable demand and little debt. A big holding is
Medco Health Solutions
, a pharmacy benefit manager. By making bulk purchases of generics, the company helps clients control health costs. "Medco is part of the solution for the health sector," Walsh says.
To hold a fund with a big stake in Europe, consider
MFS Global Equity
, which returned 0.6% annually during the past decade, outdoing, 61% of its competitors. The fund focuses on high-quality companies that can grow at above-average rates. Holding companies with secure market niches, MFS beat the averages during the downturn last year.
A top holding is Swiss giant
. The company's coffee and confectionary brands will continue to maintain their strong followings around the world, says MFS portfolio manager Ben Kottler. "In tough times, consumers stick with brands that they know and trust," he says.
Academic researchers have long favored index funds, which track benchmarks like the S&P 500, over actively managed funds that try to beat the averages. During the difficult markets of recent years, many active funds have failed miserably.
But before the academics gloat, they should consider the performance record of world stock funds. Holding a mix of foreign and U.S. stocks, the funds have regularly beaten their benchmarks. During the 10 years ending in February, the average world fund returned 0.1% annually, beating the
MSCI World Index
by 2.6 percentage points and topping the S&P 500 by 3.3 points, according to
The typical domestic equity fund must focus on U.S. stocks, while standard international portfolios emphasize overseas shares. But world funds can roam the globe, buying anything. "It is easier to beat a benchmark when you can pick stocks from dozens of countries," Artio's Walter says.
World funds may favor U.S. companies one year and foreign competitors the next. From 2002 to 2007, many funds leaned on Europe, a winning move during a period when U.S. stocks trailed. Lately, some portfolio managers have overweighted the U.S., a strategy that enabled funds to outperform.
When they search for investments, world managers compare U.S. and foreign competitors. "While a domestic manager may look for the most attractive pharmaceutical companies in the U.S., a global manager buys the most attractive pharmaceutical stocks in the world," says Timothy Noonan, managing director of
Ben Kottler, manager of MFS Global Equity, says he has had success in recent years by trading shares of U.S. and foreign companies that produce industrial gases -- such as hydrogen and oxygen -- which are used by manufacturers and hospitals. A small number of companies dominate the field, including U.S.-based
Despite their advantages, global funds account for a tiny percentage of total fund assets. Most investors prefer holding pure international funds. But that could be changing. More institutional investors are beginning to hire global managers. At a time when business is becoming globalized, American multinationals serve the same customers as their foreign competitors do. So portfolio managers should be free to buy stocks from around the world.
Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.