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

25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021
Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments
Tax Breaks

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

Unlike stimulus checks, you might have to repay your monthly child tax credit payments if you get too much money from the IRS.
July 16, 2021
Will Monthly Child Tax Credit Payments Lower Your Tax Refund or Raise Your Tax Bill?
Tax Breaks

Will Monthly Child Tax Credit Payments Lower Your Tax Refund or Raise Your Tax Bill?

Everyone loves receiving large sums of money from Uncle Sam. But people who take advance child tax payments may take a hit on next year's tax refund.
July 31, 2021

Recommended

How to Play the High-Yield Rally
Becoming an Investor

How to Play the High-Yield Rally

Junk bonds have been on a tear, so this fund has shifted to defense.
July 29, 2021
How to Profit From ETFs
Becoming an Investor

How to Profit From ETFs

Exchange-traded funds aren’t new, but they’re still red-hot. Here’s a detailed look at why you should consider these investment vehicles, for both you…
July 29, 2021
The Case for Investing Overseas
Kip 25

The Case for Investing Overseas

Fidelity International Growth fund tends to thrive during stretches of market uncertainty.
July 29, 2021
Bankruptcy Filings Chalked Up to COVID-19
investing

Bankruptcy Filings Chalked Up to COVID-19

Bankruptcy filings triggered by COVID-19 difficulties continue to pile up. Here, we look at 32 big-name companies that sought out bankruptcy protectio…
July 27, 2021