The Case for Global Funds
Let's say you're bearish on homebuilders in the U.S. but like the business in China. You like wireless telephony but find better values in emerging markets, such as Mexico, than at home.
You think platinum is a promising precious metal; not much of it is found here, but there are companies that mine it in Canada. But you do still find good value in some U.S. energy stocks -- largely because of high economic growth abroad -- and in shares of computer maker Dell (symbol DELL).
That pretty much describes the mindset of a global portfolio manager -- and illustrates some holdings of Thornburg Global Opportunities (THOAX).
Based in Santa Fe, N.M., co-managers Brian McMahon and Vinson Walden have skillfully steered this global stock fund since its launch in July 2006. In 2007, Global Opportunities, which invests in companies of all sizes, returned 32%, outpacing its benchmark, the MSCI All Country World Index, by 21 percentage points.
The advantage of running a global fund is that its manager can scour the globe, comparing and contrasting stocks and industries. "We go where the value is," says McMahon, who notes that foreign publicly traded stocks now account for two-thirds of the world's market capitalization.
At the end of September 2007, 68% of assets were in foreign stocks, but that share can change at any moment depending on where the managers think the best bargains reside. Besides, as McMahon says, where a company is officially based is increasingly blurred in today's globalizing economy. Example: Freeport-McMoRan Copper & Gold (FCX), one of the fund's top holdings, is a U.S. company, but it has its principal mining assets in Indonesia.
McMahon says he relishes being able to follow economic and societal trends that are playing out around the world and not have to stop at national boundaries. "More and more industries are affected by global supply-and-demand dynamics -- natural resources or communications trends related to Internet and wireless," he says.
For instance, discerning development patterns in wireless in the U.S. and other industrialized countries led him to such emerging-market cellular stocks as China Mobile (CHL) and Mexico's America Movil (AMX).
Experience with the excellent performance of publicly traded securities exchanges in the U.S. encouraged McMahon to take a stake in newly listed Bovespa Holdings, Brazil's stock exchange.
McMahon is shunning U.S. homebuilders. "We've spent way too much money on housing and real estate: Americans are over-housed," he says. But the Chinese are under-housed, so he invested in Country Garden Holdings, a Chinese homebuilder.
Global Opportunities is off to an outstanding start, but, alas, do-it-yourself investors must pay a front-end load of 4.5% to purchase the fund. If you can access the fund without load through a financial adviser, 401(k) plan or other retirement plan, then we can highly recommend it.
We also like Ivy Asset Strategy (WASAX), a global fund that returned 41% in 2007 and 28% annualized over the past three years through January 2. This fund can -- and does -- also invest in gold, bonds and currencies.
Mike Avery and Dan Vrabac have run this high achiever since 1997 and were joined last year by Ryan Caldwell. But Ivy, like Thornburg, sells its funds through brokers and levies a steep 5.75% sales charge.
The good news is that you can purchase some fine no-load global stock funds run along similar principles.
Two growth-oriented ones we like are T. Rowe Price Global Stock (PRGSX), which returned 20% last year, and Marsico Global (MGLBX), which was launched in July 2007 and returned 18% in its first six months. Both funds are run by veterans with fine track records: Rob Gensler at T. Rowe and Tom Marsico, Cory Gilchrist and James Gendelman at Marsico.
In the global value camp, it's hard to beat Wintergreen (WGRNX), run by David Winters. Wintergreen returned 21% last year but carries a high 1.91% annual expense ratio.
Here's one piece of advice. Before you get carried away investing in global funds or pure international funds, check your "domestic" funds to see how much foreign exposure you're already getting.
Many ostensibly domestic funds have dramatically raised their overseas exposure in recent years, as they find better values and growth prospects abroad. For example, Ken Heebner's CGM Focus (CGMFX), a Kiplinger 25 fund, at last reading had more than half of its portfolio in foreign-based companies.