A Belated 'I Told You So' to Cramer on International Investing

Cramer may have won last year's face-off, but this year's returns for international funds are vindication for Buttner.
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As I'm sure

Herb Greenberg

and

Dave Kansas

will agree, clashing with

Jim Cramer

can be kinda fun! Last week's taping of "TheStreet.com" TV show on

Fox News Channel

(the actual airing was pre-empted, understandably, by news of the

Kennedy

tragedy) was a blast, and this weekend's show promises to be just as lively. Often in business TV, strong opinions and action-oriented information are barely tolerated; here, anything less is unacceptable. (Not only that, but you get

Gary B. Smith's

one-liners. Worth the price of admission alone.)

So in that spirit, I say, JJC, you were Wrong!

(Only trouble is, I wasn't necessarily right.)

Remember last year when I

faced off with Cramer about international investing? He was con; I was pro. You had a chance to vote, and not surprisingly, my side lost. U.S. markets were on a roll, and overseas, the emerging ones were busy submerging.

Take another look.

The average return for emerging-markets funds so far this year is a whopping 39%, according to

Morningstar

, nearly triple the gains that U.S. diversified funds delivered. Latin America funds? Up 27% year to date. And a slew of Japan funds with triple-digit gains are fighting with highflying Internet funds for top of the charts overall.

Yeah, that's right. No need to trot out the tired traditional defense of international investing: diversification. (In fact, so many markets overseas move in sync with ours, it's not at all clear that even holds true any longer, short or long term.) Here's why you invest overseas: to make money, the same reason you do here at home.

So the question is not whether international investing can pay off. Clearly, it can. But does it make sense to jump in now? Is the recovery in Japan and much of Asia for real? What about China fears? Can Latin America, always a risky region (Latin America sports a 12-month return of -14%), survive any

Fed

rate hikes?

And then there's Europe. While I can take credit for defending international investing in the face-off, I can't really rub it in. That's because I predicted that Europe was likely the place to be.

Since then, after a spectacular six-month run when European region stock funds easily outpaced any other fund category, including sexy ones like high tech, they hit a rough patch as European economies took a turn for the worse. And for the last 12 months, European funds actually lost money, down seven percentage points on average.

But several top fund managers are betting that's no longer the case. Francois Sicart of

(TIVFX) - Get Report

Tocqueville International Value, No. 1 in the foreign-stock category for the last 12 months, racked up a 50-point gain in the past year by getting into Asia early. Now he's busy buying euros and preparing to raise his asset allocation in Europe, expecting a strong recovery there.

"There have been domestic recessions except in Ireland and Spain, and many companies have still managed to increase foreign earnings, either by investing abroad or through exporting better. If domestic demand is picking up, the level of earnings will surpass what analysts think possible," he says. Sicart likens the next phase in European stocks to where the U.S. was in the early '90s.

Ditto from Rob Friedman, chief investment officer for the

Mutual Series Funds

-- 95% of the $6.5 billion his firm invests overseas is now in Europe. "The major restructuring in Europe is staggering," says Friedman.

Beyond privatization and merger mania, a strengthening shareholder culture could also contribute to a booming market. And right now, points out senior portfolio manager Oscar Castro of

Montgomery Asset Management

, who has 70% of his global funds in Europe, "Not only can you buy the great story of the next decade -- even century -- but you get it at a cheap price."

Of course, the jury's still out on Europe. And investing overseas has plenty of drawbacks. Stock-picking can be a lot harder than in the U.S., given the myriad differences in accounting practices worldwide. And in general, you pay more for international stock funds. Plus, there's the issue of volatility. Today's top-performers definitely know what it means to bump along the bottom. Tocqueville International, for example, was one of the worst-performing foreign funds not long ago, down 30% in 1997.

But the bottom line is this: Bulls don't have to be born in the U.S.A. I don't discriminate in my portfolio. Good investments, made in America or not, are always welcome.

More on Magellan

I don't know about you, but I was dismayed by the reporting on

Fidelity's

latest disclosure of

(FMAGX) - Get Report

Magellan's top holdings. "Magellan dumps AOL" screamed the headlines. That may be far from the truth. Yes,

America Online

(AOL)

dropped from the fund's top-10 holdings. But that's all we know. And such a move could be attributed to that stock's slide instead of any aggressive selling on manager Bob Stansky's part.

TV Talk

Sorry, can't resist. Everybody else, including

Herb G.,

JJC and

Gary B., is buzzing about the new show in their columns. And producer

Gary Schreier

, a.k.a Mr. TV, might not take me to see

Springsteen

next Monday if I don't put in a plug. So be sure to check us out this weekend (Saturday at 10 a.m. EDT and Sunday at 1 p.m.).

Note to Gary B., who tells us he has two personas, one for television and one for the Net: I'd have a beer with both of you, any time. But as for your

TSC: The Movie

concept, what I wanna know is, Who will play Herb G.? Or Dave?

Tom Cruise

is busy on another film, I understand.

Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at

TSCBrenda@aol.com.

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