Want Foreign Exposure? Go With Funds

2/6/2017


Even foreign stocks may be benefiting from a Trump bump — though only slightly. The MSCI EAFE Index, which tracks 930 large and midsized stocks across 21 developed countries, has gained 4.8% since the Nov. 8 election, compared to 6.5% for the S&P 500 Index. The EAFE index is up 2.9% so far this year, versus 1.9% for the S&P 500.

Foreign stocks are cheaper than U.S. stocks. Stocks in the EAFE average a trailing price/earnings ratio of only 17, versus 21 for the S&P 500. And EAFE stocks yield 3.1% on average, compared to 2.1% for the S&P 500. Two underlying trends bode well for growth. Accomodative monetary policies could help fuel gains in Europe, while improved commodity prices could benefit certain emerging markets.

To be sure, political discontent and upcoming elections in several key countries could impact membership of the European Union and weigh on the euro. The outlook for China is mixed, reflecting slowing growth, a weak currency, and potential trade tariffs from the Trump administration. Finally, last month the International Monetary Fund (IMF) trimmed its growth outlook for many emerging-market economies, concerned about higher borrowing costs and falling currencies.

While the EAFE Index has trailed the S&P 500 in four of the last five years, smart investors know the importance of international diversification over the long haul. Among the Forecasts' recommended fund portfolios, our Growth Portfolio is 16% foreign stocks, while the Conservative Portfolio is 14%.

The easiest way to gain exposure to foreign stocks is via funds. Below we list 16 standout mutual funds and exchange-traded funds (ETFs) in 11 categories. Fidelity Overseas ($41; FOSFX), a member of both recommended portfolios, is a top pick in the large-cap blend category. On Dec. 31, top country weightings were: United Kingdom (22%), Japan (20%), and Germany (9%). The five-year annualized return is 9.3%, ranking it among the top 2% of its peers. The expense ratio is 1.03%, below the category average of 1.25%.

The more adventurous might consider iShares MSCI EAFE Small-Cap ETF ($52; SCZ), which holds 1,620 stocks with a median market capitalization of about $1.7 billion. On Dec. 31, stocks from Japan comprised 31% of assets. The ETF, up 13.7% over the past year, earns a fund score of 93. The expense ratio is only 0.40%.

SELECT INTERNATIONAL FUNDS
--- Total Return ---
Fund (Price; Ticker)
12
Months
(%)
5 Years
(Annual.)
(%)
Exp.
Ratio
(%)
Fund
Score
Category
Or Region
Dodge & Cox Global ($12; DODWX)
31.9
12.6
0.63
100
World
Fidelity Int'l Small Cap ($24; FISMX)
19.7
11.3
1.33
80
Small/mid
blend
Fidelity Overseas ($41; FOSFX)
8.4
9.3
1.03
81
Large-cap blend
First Trust D.J. Global Div.
($24; FGD)
19.2
6.0
0.58
90
Large-cap
value
iShares Latin America 40 ($30; ILF)
50.1
(5.9)
0.49
71
Latin America
iShares MSCI EAFE Small-Cap
($52; SCZ)
13.7
9.4
0.40
93
Small/mid
blend
Schwab Fundamental Int'l
($8; SFNNX)
17.6
6.3
0.35
95
Large-cap
value
SPDR S&P China ($77; GXC)
23.1
4.8
0.59
80
China
T. Rowe Price Int'l Discov.
($55; PRIDX)
12.0
10.9
1.20
100
Small/mid
growth
T. Rowe Price Int'l Stock
($16; PRITX)
13.3
5.8
0.84
96
Large-cap
growth
Vanguard Emerging Mkts.
($24; VEIEX)
24.5
0.1
0.32
93
Emerging mkts.
Vanguard FTSE Developed Mkts.
($38; VEA)
12.7
6.4
0.09
95
Large-cap
blend
Vanguard FTSE Emerging Mkts.
($38; VWO)
25.9
0.4
0.15
96
Emerging mkts.
Vanguard FTSE Europe ($49; VGK)
8.6
6.0
0.12
77
Europe
Vanguard Total World ($63; VT)
18.7
9.2
0.14
94
World
WisdomTree Int'l SmallCap
($63; DLS)
18.2
9.6
0.58
92
Small &
mid value
Fund scores are percentile ranks, with 100 the best.     Recommended funds in bold.

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