Morningstar Advisor - Fall 2007 - (Page 33)

The Return of the Global Flexible Investor By Gregg Wolper Mutual funds relax reins on managers bent on finding the best opportunities no matter where they’re located. Advisors should follow suit. The global flexible investor—a manager unrestricted by regions in search of the best opportunities—is not a new invention. As long ago as the 1950s, legendary fund manager Sir John Templeton included a number of non-U.S. companies in his Templeton Growth Fund. When Jean-Marie Eveillard took the reins of SoGen International (now First Eagle Global SGENX) in 1979, it already had a mandate to own companies from anywhere in the world. By the 1990s, though, the fund industry had moved to a different model. Many more investors—and advisors—preferred to make their own allocation decisions. So in addition to creating new funds to target various areas of the U.S. market—small-value, mid-growth, and the like—fund companies became more likely to restrict their portfolio managers to investing either inside or outside the United States. But signs of change have emerged in the past few years. Usually they’re subtle, such as managers of U.S. funds adding a few foreign stocks to their portfolios. In some cases, however, fund firms have created entire new offerings with broad global mandates. Investors and advisors should extend a welcome to this trend. It makes sense to allow talented managers the freedom to invest where they see fit instead of being forced to adhere to geographical boundaries. After all, those restrictions seem more and more arbitrary every day. In many industries, top-tier companies are located both within the United States and abroad. For some companies, it’s even tough to say which country should be labeled as its home. And many fund shops have broken down the division between their U.S. and their international analyst teams, instead assigning all the leading companies in a sector to one analyst regardless of where the stock trades. “Ten years from now,” Charles Royce, president and chief investment officer of Royce & Associates, said in a recent interview, “no one will say a fund is a ‘domestic fund.’” Despite its benefits, this trend can cause nightmares for advisors who like to maintain specific geographic allocation levels for their clients. Another potential pitfall: Managers experienced in one region might lack either the depth of knowledge, or simply the time, to extend their purview over a whole new group of companies headquartered in different locales. Happy Travels Cox Stock DODGX has nearly 20% of assets abroad; by contrast, in 2000 it had almost the entire portfolio invested in the United States. AIM Charter CHTRX, which AIM describes as a domestic-equity fund, has a nearly identical history: Almost nothing foreign in 2000, roughly 20% of assets today. Even the giant with the star-spangled moniker Growth Fund of America, from American Funds, has a foreign stake in the high teens. More than one Fidelity and Janus domestically focused fund has a hefty investment in non-U.S. companies, as well. Along the same lines, the Royce funds raised the cap on foreign investing for one of its U.S.-focused funds to 25% from 10% of assets, and it inserted the word “global” in its name to better reflect its scope. Shareholders of some other domestic-oriented Royce funds are being asked to approve the lifting of foreign-holding restrictions for those portfolios, too. Meanwhile, the two foreign-focused funds opened by Royce in December can invest up to 35% of assets in the United States—and one already does so. The Royce group isn’t the only fund family loosening the reins on foreign investing. In late 2006, Tweedy, Browne dropped the word “American” from its American Value fund TWEBX and removed the 20% limit on the amount the fund can invest abroad. “Why In a sign that the world’s boundaries are blurring, some of the best-known domestic funds have substantial foreign stakes. Dodge & MorningstarAdvisor.com 33 http://MorningstarAdvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Fall 2007

Morningstar Advisor Fall 2007 Features Departments Letter from the Editor Inbox 10 Years After: Developing Markets Make Progress Research Briefs Investors Should Adjust Their Home Bias Few Mutual Funds Exhibit Serial Correlation Valuating ETFs, the Equity Analyst's Way It’s All About Location See the World (Differently) The Return of the Global Flexible Investor Map of International Value Sound as a Loonie? Fair Exchange In Their Own Worlds A Good Read Putting Their Heads Together Buying Protection Scoping Out Easy-to-Use Funds Finding Good Stewards Consumer Firms Go Global Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities New at Morningstar The Whole Wide World

Morningstar Advisor - Fall 2007

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.