Top Foreign Fund Reduces Risk
03/28/2007 12:00 am EST
Richard Band, editor of Richard Band’s Profitable Investing, recommends a top performing actively managed international stock fund for investors who want more overseas exposure with lower risk.
As exciting as it is to profit from specific overseas stocks and markets, you should also remember that international investing brings with it certain risks.
To smooth your path, I encourage you to consider a well-managed mutual fund for part of your international exposure. By going through a fund, you’ll achieve instant diversification among countries and individual stocks, lessening your risk of a major shock.
What’s more, it’s clear to me that some managers, anyway, are capable of beating the international stock indexes over extended periods. Put these all-stars to work for you, and you may find yourself making more money than you could on your own.
As always, I prefer “pure” no-load funds (those with no up-front sales charge). In addition, I give pride of place to funds that operate on lower overhead than their peers. It’s more expensive to run an international fund than a domestic fund, but that’s no excuse for gouging the customer!
An important threshold question is whether you want to buy a global fund (one that has the flexibility to invest in the United States as well as foreign markets) or an international fund (outside the United States only). If you’re making your first move outside our borders, I recommend getting your feet wet with a global fund.
On the other hand, if foreign exposure is what you’re really looking for, I suggest going whole hog with an international fund.
Dodge & Cox International Stock Fund (DODFX; $2,500 minimum) is my top-rated fund with an exclusively foreign focus. Long-time readers will recall my numerous plaudits for the domestically oriented Dodge & Cox Stock Fund (DODGX)and Dodge & Cox Balanced Fund (DODBX)--both now closed.
Like the other two, DODFX follows a rigorous “value” strategy—and with similar, superb results. Over the past five years, DODFX has logged an astonishing 165.6% return. Of course, most international stock markets have also done well over the same period. But DODFX has beaten its benchmark, the MSCI Europe, Australasia and Far East Index, by a yawning 4% a year, after expenses. That’s the power of superior stock picking!
One caveat, however: Dodge & Cox could close the fund soon if cash inflows continue at the current pace. (As of December 31, DODFX sported $31 billion of assets.) I urge you to take at least a small “pilot” position now, so you won’t be disappointed if the door slams shut.
What to do now: Buy DODFX at $45.15 or less. (It closed at $45.69 Tuesday—Editor.) It is available through leading discount brokers (Schwab, Fidelity, TD Ameritrade, eTrade), but only by paying a transaction fee. If the transaction fee bothers you, buy directly from the fund.