Foreign Stocks & Emerging Markets

Don't Bail on Foreign Stocks

The downturn among foreign stocks has affected the foreign-stock funds in the Kiplinger 25, but they still deserve a place in your portfolio.

What a turnaround. At the start of 2018, the outlook for foreign stocks was sunshine and roses. But by spring, the optimism had evaporated in a black cloud of worries about a trade war and the negative impact of rising U.S. interest rates and a stronger dollar on foreign economies. A "bad cocktail" of macroeconomic conditions has taken a toll on overseas markets, particularly emerging countries, says Baron Emerging Markets (BEXFX) manager Michael Kass. And investors are anxiously waiting to see if a collapse of Turkey's lira triggers a sector-wide crisis.

After peaking in late January, the MSCI EAFE index, which tracks stocks in foreign developed markets, fell 8.9% through August 10. The MSCI Emerging Markets index fell 15.2%.

The downturn affected our Kiplinger 25 foreign-stock funds, too. But all are in positive territory over the past 12 months except for Oakmark International (OAKIX), which lost 2.4%.

Market turmoil can jangle investors' nerves, but our Kip 25 foreign-fund managers remain focused. The volatility is an opportunity to "buy great companies on the cheap," says Fidelity International Growth's (FIGFX) Jed Weiss. He continues to favor businesses in industries with long-term growth potential—electronic payment systems, for example. Visa (V) and Mastercard (MC) are top fund holdings.

Managers at AMG TimesSquare International Small Cap (TCMPX) seek well-run businesses that are taking market share from weaker competitors. That helps shield the fund from broad economic and political shifts, says co-manager Magnus Larsson. "We've been able to find pockets of growth even in economies that are not growing strongly," he adds. One example, he says, is shares of online Japanese mortgage lender Aruhi, up 89.7% so far this year, even in slow-growing Japan.

A sign of hope for global markets is that earnings growth is chugging along. Even so, Kass says, emerging markets will likely trail developed markets.

But that's no reason to bail on foreign stocks. Even if a tilt to U.S. stocks makes sense now, it's important to remember that foreign stocks account for 48% of the world's market and they deserve a place in your portfolio.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
12 Best Monthly Dividend Stocks and Funds to Buy
Kiplinger's Investing Outlook

12 Best Monthly Dividend Stocks and Funds to Buy

Your bills come monthly. Why not your dividend checks? These are some of 2022's best monthly dividend stocks and funds for easier income planning.
November 22, 2021
The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
November 16, 2021

Recommended

Where to Find Yield in 2022
Investing for Income

Where to Find Yield in 2022

I am sold on leveraged closed-end debt funds, junk bonds and floating-rate bank loan funds.
November 29, 2021
When Actively Managed Funds Are Worth It
Becoming an Investor

When Actively Managed Funds Are Worth It

For some investment categories, choosing an actively managed fund makes sense.
November 24, 2021
Wasatch Emerging Markets Small Cap Goes Its Own Way
Foreign Stocks & Emerging Markets

Wasatch Emerging Markets Small Cap Goes Its Own Way

This emerging-markets stock fund isn't afraid to stray from the pack.
November 24, 2021
Where to Invest in 2022
Kiplinger's Investing Outlook

Where to Invest in 2022

Investors will have to curb their enthusiasm as markets get back to normal.
November 24, 2021