Global Favorites for Three Risk Levels
08/07/2014 9:00 am EST
History shows US investors are notorious for being underinvested in foreign markets, and if you’re one of them, now is the time to look beyond our borders and embrace the rest of the world with these top-performing mutual funds, asserts Ari Charney in Personal Finance.
USAA World Growth (USAWX)
For risk-averse investors who’d like overseas exposure anchored by more stable US equities, USAA World Growth is a time-tested vehicle. It divides its holdings between the US and other developed countries.
Over the past ten years, the fund has gained 9.7% annually, beating the MSCI EAFE by nearly 3 percentage points annually, while also outpacing the S&P 500 by 1.6 percentage points per year.
The fund’s strong performance has persisted over shorter-term periods as well, resulting in rankings in the top 14% and 9% over the trailing five- and three-year periods, respectively.
Part of that performance is due to management’s focus on high-quality companies that not only generate strong growth and free cash flows, but also operate in steadily growing industries.
The resulting mix of nearly 100 blue chips is comprised mostly of large-cap, developed world names, though many of them also do substantial business in the emerging markets.
Portfolio turnover is low, averaging just 13.7% over the past three years, showing the managers are patient, long-term investors. USAWX charges a 1.25% annual expense ratio, which is slightly below average for its category, and requires a minimum initial investment of $3,000.
Dodge & Cox International Stock (DODFX)
Of course, investors comfortable with greater exposure to foreign equities stand to gain even more if they jump further into foreign markets. Dodge & Cox International Stock offers more international exposure and slightly more volatility, while still being a prudently run and top-performing fund.
The large-cap value fund gained 9.6% annually over the past ten years, earning it a ranking in the top 9% of its category.
The secret to the fund’s success is its extreme value discipline, with the sort of patience that comes from the longevity of Dodge & Cox itself, which has been around since 1930. This Morningstar Gold Medalist is led by a seasoned investment team, whose value orientation and long-term perspective toward investing frequently lead it to stocks that have fallen out of favor with the market.
Over the past three calendar years, portfolio turnover has averaged just 13%. The fund charges a 0.64% annual expense ratio, which is about half that of its average peer, and requires a minimum initial investment of $2,500.
Harding Loevner Emerging Markets Advisor (HLEMX)
Finally, aggressive investors who already have exposure to overseas names in the developed world should consider Harding Loevner Emerging Markets Advisor. The fund has gained a staggering 13.1% annually over the past ten years, despite suffering losses of 52.3% and 17.5% in 2008 and 2011, respectively.
Such volatility is simply the nature of investing in the developing world, though the fund’s more conservative approach has kept portfolio risk slightly below its average peer, while generating far higher returns.
Management pursues a growth at a reasonable price strategy by looking for high-quality companies that boast strong financials, enduring competitive advantages, and that generate sustainable earnings growth.
The vast majority of the fund’s 80—mostly large-cap holdings—operate in the emerging markets, with some operating in the frontier markets as well. The fund charges a 1.47% annual expense ratio, which is slightly below the category average, and requires a minimum initial investment of $5,000.
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