With domestic markets in turmoil, U.S. participants in 401(k) and other defined contribution (DC) plans are hungry to put their money into overseas investments, even though many European countries are struggling with the same issues the United States faces.
So where is the American 401(k) marketplace most likely to put its money when investing abroad?
BrightScope, the San Diego-based 401(k) investment research firm, studied its database of more than 50,000 plans, representing nearly 90% of all assets in the 401(k) and DC universe, to come up with a list of the most popular international stock funds by total distribution among 60 million American investors. The list comprises funds within the “International” Morningstar category.
“It is universally understood that maintaining an appropriate amount of international stock exposure is a critical part of managing a well-diversified portfolio,” said Mike Alfred, co-founder and CEO of BrightScope, in a statement. “Not surprisingly, international stock funds have become ubiquitous in 401(k) plans and today serve as one of the largest, fastest growing, and most lucrative pools of assets that an opportunistic asset manager can target from a sales perspective.”
In reverse order, here are the Top 10 most widely distributed international stock funds in the 401(k) and DC industry:
10. TIAA-CREF Global Equities
9. Harbor International
8. Artio International Equity
7. Vanguard Total International Stock Index
6. SSgA EAFE Index Fund
5. American Funds New Perspective
4. Vanguard International Growth
3. Dodge & Cox International Stock
2. Fidelity Diversified International
1. American Funds EuroPacific Growth
According to BrightScope's Alfred, his firm studies data gathered from yearly audited financial statements. While he acknowledges a lag in the data, Alfred notes that "the 401(K) market doesn’t move that fast.”
Alfred told AdvisorOne that the most striking fact about the Top 10 list is that two of the top three funds are not proprietary to a large record-keeper such as T. Rowe Price, Vanguard or Fidelity, which are the dominant companies in the space, with very strong mutual fund franchises. Those two nonproprietary firms, American Funds and Dodge & Cox, are of interest because their top rankings "indicate high performance or overperformance over a long period of time," Alfred said.
Top 10 lists from AdvisorOne: