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Patton’s Fund Picks, Pt. 2: Foreign Stock Funds

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Last week we began a series of postings on funds that have consistently delivered alpha to its shareholders. Specifically, I listed a few of my favorite domestic stock funds picks. This week we turn our attention to foreign stock funds. Before we begin, however, a brief word is in order. Although this may be fairly basic to some of you, I think it’s important to discuss the role that currency fluctuation plays on investing in foreign markets. 

From June 2001 until mid-2008 the U.S. engaged in a weak dollar policy. Whenever the dollar is weak, exports tend to rise. This is because someone outside the U.S. can purchase our goods for less since a weak dollar makes their currency stronger. During this time, a great deal of foreign entities bought American real estate, businesses, etc. Lately, the dollar has been strengthening. According to many pundits, a strong dollar is one key in reviving our economy. I’ll leave that debate for another time. The point is this. A stronger dollar makes it less attractive for a U.S. citizen to invest overseas. As a result, I would recommend a smaller allocation to foreign investments for the time being. Let’s start with large ‘developed nation’ stock funds and conclude with emerging markets. 

Foreign Developed

My two favorite picks here are Sextant International (SSIFX) and Tweedy Browne Global Value (TGBVX). According to Morningstar, the Sextant fund has a cash position of about 27% as of the end of May. This fund also has a great risk/return profile and a very low expense ratio of 0.88%. Moreover, management has been in place for nearly 17 years.

 Another good choice is the Tweedy Browne value fund. TGBVX also has a good long-term track record and management has been in place for about 13 years. Tweedy’s risk/return profile is also excellent, despite the fact that it has a higher expense ratio than the Sextant fund (1.40% to 0.88%). Tweedy’s returns have kept it in the top quartile of its peer group for the past four-and-a-half years. 

Emerging Markets

My two best recommendations here are Oppenheimer Developing Markets Y (ODVYX) and Virtus Emerging Markets Opportunities I (HIEMX). Oppenheimer’s offering has a great risk/return profile, a low expense ratio of only 1.00%, and it has ranked in the top half of its Morningstar peer group since 2008. Management has been in place for just over five years. 

The Virtus EM fund has an excellent risk/return profile, a slightly higher expense ratio (1.42%), and although HIEMX underperformed its peers in 2009, it has outperformed 95% of its peers in three of the past four years. 

How about you? Care to share?

Thanks for reading and have a great week!


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