A Simpler Path to International Diversity
Want to diversify your foreign stock holdings without having to choose three or four or more funds? One way to do so is with a fund that relies on star stock pickers from a variety of money-management firms, with each manager contributing his or her best picks to the fund. Don't confuse a "manager of managers" fund with a fund of funds, which is a mutual fund that holds shares of other funds and often carries steep annual fees because it charges for management and also absorbs the fees of the underlying funds.
An intriguing multi-manager fund in the international arena is Charles Schwab's Laudus International MarketMasters (symbol SWOIX; 800-435-4000). Each of its managers brings a distinct investing style to the table, resulting in a fund that is well diversified between growth and value stocks and among geographical regions and market-capitalization ranges. Over the past three years, International MarketMasters returned an annualized 33%, four percentage points per year more than the average diversified international fund.
In 2002, Schwab converted four funds from the fund-of-funds structure to the multi-manager "MarketMasters" format. Each fund's assets are spread among four managers. Aside from the diversification multi-manager funds provide, a big draw is that you can often gain access to managers whose own funds are closed to new investors.
Case in point: The lineup of International MarketMasters includes George Greig, manager of William Blair International Growth fund (WBIGX), and Federico Laffan of American Century International Opportunities (AIOIX); both funds are closed to new investors. International MarketMasters' managerial roster also includes Mark Yockey of Artisan International (ARTIX, 800-344-1770) and David Herro of Oakmark International (OAKIX; 800-625-6275). Herro, who invests mostly in large, out-of-favor companies, currently controls 36% of the portfolio, the most of any manager.
Jeff Mortimer is International MarketMasters' maestro. He keeps tabs on the fund and sets its overall asset allocation by "tilting the portfolio based on what's in favor in the international spectrum," he says. The fund, with assets of $1.4 billion and just over 400 holdings, has more than half of assets in the shares of large, growth-oriented companies. Regional exposure is heaviest in Western Europe, although 20% of the fund's assets are currently invested in Japan. Top holdings include Nestle, GlaxoSmithKline, Novartis, BMW, and Diageo. Occasionally, managers' holdings overlap, but, Mortimer says, only a few stocks account for more than 1% of the fund. Turnover is just over 50%, meaning the fund replaces, on average, about half of its portfolio each year. Annual expenses are 1.65%, compared with an average of 1.62% for all diversified international funds.