Going Global
Adding an overseas fund could be just the tonic for your portfolio
In the money. No wonder that 22 percent of global fund managers surveyed recently by Merrill Lynch favor the emerging markets as the best investment for 2005. That's compared with the 19 percent who think European stocks will shine and the 14 percent who think U.S. equities will lead the global markets.
Many analysts think companies in Asia and Latin America will shine. Many of the Asian Tigers such as South Korea are likely to continue to benefit from the breakneck pace of the Chinese economy.
Many Latin American and Asian companies are also poised to thrive from the global economy, especially those that produce the basic raw materials, ranging from steel to copper to building materials, that the industrialized world requires to keep going. These are companies like Mexico's Cemex, a cement and building material supplier, and Daelim Industrial, a South Korean engineering and petrochemical company. "As long as short-term interest rates are below the rate of inflation--which they are still--commodities tend to do well," says Jack Ablin, chief investment officer for Harris Private Bank.
Investors eyeing the emerging markets should probably stick with a diversified fund. These include funds such as T. Rowe Price Emerging Markets Stock, Vanguard Emerging Markets Stock Index fund, or Excelsior Emerging Markets. Another way to play emerging markets, says Susan Byrne, chief executive of Westwood Management, is to invest in large U.S. companies that benefit from the development of those emerging economies. These would be blue-chip companies like Caterpillar or 3M.
Still another option is to consider which sectors of the U.S. economy tend to rely most on foreign revenues. Sam Stovall, chief investment strategist for S&P, did just that. Based on 2003 figures, he determined that 53 percent of the revenues of tech companies in the S&P 500 are generated overseas. In addition, about a third of sales in the industrials and basic materials sectors are foreign. "You have to look at what you've already got," says Christine Benz, associate director of fund analysis at Morningstar.
Benz notes that in addition to indirect foreign exposure, many U.S. stock funds are directly investing in foreign shares. Though it's a U.S. fund, Fidelity Contrafund invests 17.5 percent of its assets in foreign shares. Fidelity Low-Priced Stock fund recently held 22.3 percent of its money overseas.
The bottom line: Investors should consider having a portion of their portfolios exposed to non-U.S. economies. But while the further weakening of the U.S. dollar is likely to be the icing on the foreign investing cake, investors should focus on the cake.
advertisement
