International stocks were the place to be in 2006 -- and, indeed, for the past five years -- as mutual funds that spread their bets around the world outperformed those that invested exclusively in the U.S.

But international stock funds tend to charge high fees to underwrite the cost of researching all of those foreign companies, not to mention the cost of trading on foreign exchanges in foreign currencies.

As it happens, one of the international stock funds that earns Rating's highest marks for risk-adjusted performance, the $30.9 billion ( DODFX) Dodge & Cox International Stock Fund , is also one of the few low-cost options.

It has an expense ratio of just 0.7%, which is competitive even for a domestic stock fund. It's not unusual for international stock funds to have expense ratios that are three to four times higher.

Dodge & Cox International Stock is also notable for its relatively low investment minimum of $2,500, which makes it accessible to retail investors. (The investment minimum for individual retirement accounts is just $1,000.) Many of the fund's peers cater to institutional investors with minimums of $500,000 and up.

International Stock seeks long-term growth of principal and income. It invests primarily in medium-to-large, well-established non-U.S. companies (as measured by the standards of the applicable market).

This suggests that the fund managers are looking for strong market share and brand names -- safe bets should trouble hit.

The portfolio's median market capitalization is $28.6 billion, and its average weighted market capitalization is $50.91 billion.

Dodge & Cox International Stock has outperformed its benchmark, the MSCI EAFE Index, for the past one, three and five years, and the consistency of its returns have earned it an A-plus rating, Ratings' highest possible rating for a mutual fund.

High Marks for Consistent Performance
Returns as of Jan. 8
Return Period Dodge&Cox Intl Stock (%) MSCI EAFE Index (%)
1 Week -1.14 -1.09
1 Month 1.78 0.63
3 Month 9.75 8.51
1 Year 20.39 19.48
3 Year 23.91 18.97
5 Year 20.1 15.61
Source: Bloomberg

Dodge & Cox International Stock is reasonably concentrated with 25% of assets invested in the top 10 holdings:

  • Sanofi-Aventis (SNY), 3.37%
  • News Corp (NWS), 2.78%
  • HSBC (HBC), 2.41%
  • Nokia (NOK), 2.34%
  • Matsushita Electric (MC), 2.32%
  • Royal Bank of Scotland (RBSPF), 2.28%
  • Infineon (IFX), 2.27%
  • GlaxoSmithKline (GSK), 2.16%
  • Hitachi (HIT), 2.16%
  • Mitsubishi UFJ Financial (MTU), 2.16%.

The portfolio has 82 securities in all, compared with 1,166 stocks for its benchmark.

By region, the fund's top allocations are to Japan, at 22.75%, and the U.K., at 13.72%. But it is the fund's investments in the rest of Europe, which account for about 36% of assets, in particular, that have paid dividends. By sector, its top allocations are to banks at 14.64%, chemicals at 9.18%, telcommunications at 6.68%, home furnishings at 6.6%, pharmaceuticals at 6.58% and oil and gas at 6.5%.

International Stock distributed a dividend of 56 cents per share and capital gains of 62 cents per share last year. By using the year-end net asset value of $43.66, we see that the 2006 distributions yielded a total return of 2.7%.

Annual Distributions
Year Income (cents) Capital Gain (cents)
2006 56 cents 62 cents
2005 35 39
2004 24 22
2003 14 0
2002 13 06
Source: Bloomberg
Sam Patel, CFA, is the manager of mutual fund Research for the Ratings.

In keeping with TSC's Investment Policy, employees of Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.