International mutual funds
Out of the funds chosen for review in this series, Europe was the region with the largest weight for the majority of the funds. The UK emerged as the top choice from Europe (FNGAX) (FAOAX). However, there are a few funds that had Japan as their geography (NBQAX) (UMBWX) with the highest weight. One had a sizable exposure to Asian equities (AWPAX) while a couple (IVINX) (UNCGX) showed a much higher affinity towards US stocks compared to its peers.
The Harding Loevner International Equity Portfolio (HLMNX) was the biggest fund by asset size. The Scout International Fund (UMBWX) was the cheapest fund while the Ivy Global Growth Fund – Class A (IVINX) was the most expensive.
To give you an idea of how these mutual funds have performed in comparison to passively managed products, we’ve provided the performance of two ETFs as well: the iShares MSCI ACWI ex U.S. ETF (ACWX) and the Vanguard FTSE All-World ex-US ETF (VEU) in individual fund analysis. We used the former as a stand-in for the MSCI All Country World ex-U.S. Index for calculating various quantitative metrics. We’ve also used it in the graph above.
All mutual funds chosen for this review have beaten the passively managed ACWX for both the one-year period until February 2016 as well as for 2015. Eight of the 12 funds (CIGRX) (NBQAX) were able to post gains for 2015 while others including the ETF fell in the year. This shows that astute fund management can help you reduce losses and even gain during times of stock market decline.
We don’t intend to suggest that passive funds must be replaced by mutual funds. The former have a different role to play in a portfolio and can be useful when active strategies start to fail. Though fund performance should not be assessed in much detail in the short term, the graph above shows that except for three of the mutual funds, all have underperformed the ACWX in the YTD period until March 8.
Your strategy for international mutual funds
Investors first need to ascertain whether they need international mutual funds in their portfolio. For instance, if you’re already invested in funds focused on different geographies, then you may not need to add these funds to your portfolio. However, if your investments are not geographically diversified, these funds may make sense.
Next, if you already have exposure to US stocks, then a couple of funds in this review, as mentioned earlier, may not be of use to you. After this, you need to determine which region of the world you want higher exposure to. If emerging markets worry you (BRFS) (BBD), then you should stay away from funds that have higher exposure to these countries regardless of their performance metrics. On the other hand, if European equities (STO) are not appealing to you, or you already have as much exposure to them as you need, then international mutual funds with higher exposure to Asia would be your best bet.
Mutual funds as a product are not traded on technical levels. When you invest in a mutual fund, you invest in a strategy devised by a fund management team that charges you a fee, unlike passive investment vehicles. Performance metrics can help you become more confident about an investment decision and empower you to assess whether it’s time to rebalance your portfolio. These numbers can help you if you know the timeframe for which you’re willing to invest your money in a strategy that you find suitable.
Visit our mutual funds page for more analysis on these products.