Global Funds Still Have a Place in Diversified Portfolios

04/01/2020 5:00 am EST

Focus: GLOBAL

Robert Carlson

Editor, Retirement Watch

With markets already pricing in a significant economic decline, this isn’t a good time to make major changes in your portfolio. We entered the downturn with well-diversified portfolios and investments that had margins of safety, explains Robert Carlson, editor of Retirement Watch.

I recommend always having balance and diversification in your portfolio and a margin of safety in your investments.

Because we follow these principles, we don’t have to panic and make significant adjustments when markets change direction as they did recently. Indeed, among our retirement portfolio holdings, we continue to own two positions offering global exposure.

T. Rowe Price New Asia (PRASX) invests in stocks in emerging markets in Asia. Recently, the fund’s holdings were weighted 46% in China, 12% in South Korea, 11.50% in India, 9.50% in Taiwan and 8.30% in Hong Kong. The fund doesn’t invest in Japan.

After reviewing the recent headlines, one would expect the fund to have steep losses. Yet, the fund has held up well because it follows key investment principles. The managers seek companies with strong growth, but their stocks must be selling at reasonable prices.

Most of the companies in the portfolio are global, regardless of their home country. The fund managers also concentrate the portfolio in the relatively few stocks that meet the fund’s criteria.

Recently, the fund held only 73 stocks, and almost 45% of the portfolio was in the 10 largest positions. The largest positions in the fund were Samsung Electronics, Tencent Holdings, Alibaba Group, Taiwan Semiconductor and AIA Group.

The leading sectors in the fund were financials, consumer discretionary, information technology and communication services. The fund’s emphasis on quality growth companies selling at reasonable prices has allowed investors to earn exceptional gains in good markets and limit losses in downturns.

Global growth stock fund WCM Focused International Growth (WCMRX) also has held up better than the market indexes. This fund looks for growth companies with global customer bases whose stocks are selling at reasonable prices.

WCMRX is another focused fund, owning only 32 stocks. About 40% of the fund is in its 10 largest positions. The fund buys only what its managers consider great companies. A company needs to be generating a high return on capital using little or no debt. Its management should foster a culture of growth.

The company also should have one or more barriers to competition and benefit from key global trends, such as increased use of technology and the growth of the middle class. By following these principles, the fund has outstanding performance in good markets and also does well when markets aren’t rising.

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