Top international funds for 2006
Many investors don’t understand the difference between “international” mutual funds and “global” funds. It’s an important distinction so make sure you know what you’re buying.
Global funds can invest anywhere in the world, in any percentages the manager wants. So, in theory, you could have a global fund with 80 per cent U.S. content.
International funds, by contrast, do not invest in North America at all or have a strict limit on Canadian/U.S. stocks. Most of their portfolios are made up of European and Asian securities.
With that distinction in mind, here are three international funds worth looking at for 2006. Talk to a financial advisor before buying.
AIM International Growth Class. This is a true international fund, with no more than 10 per cent of the assets in North America, and it’s one of the best. It is run by a team of four managers based in Houston who focus primarily on mid and large-cap stocks. The fund sustained losses in 2001 and 2002, which was par for the course in the bear market. Since then, it’s been a different story. The fund gained 12.1 per cent in the latest year (to Nov. 30) and the three-year average annual retu of 10.8 per cent is significantly better than the average for the International Equity category. The portfolio is well diversified, with the U.K. having the largest geographic weighting at 13.8 per cent followed by Japan at 12.1 per cent. Apart from the good returns, we’re impressed by the fact that the risk rating is better than average for the category despite the fund’s growth style, which can tend to be more volatile.
Altamira Precision International RSP Index Fund. If you want to entrust your international investing to an index fund, this will do the job just fine. It tracks the Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI-EAFE) and does so in a very efficient manner, aided by a low MER of 0.54 per cent. Actually, this fund significantly outperformed the EAFE in Canadian dollar terms over the latest three-year period, gaining an average of 14.9 per cent annually compared to 9.7 per cent for the Index. This was a case of the strong loonie adding to the profit. That’s because the fund invests primarily in options, futures and forward contracts denominated in Canadian dollars. (This was to maintain RRSP eligibility but of course that is no longer a factor.) The fund offers a cheap way of adding EAFE exposure to your portfolio as it has a low MER and is no-load.
Mawer World Investment Fund. This fund invests in equities outside North America, specifically Europe, the Pacific Basin, and Latin America. Overseas stocks suffered badly during the bear market and the fund recorded three straight years of losses from 2000 to 2002. Still, its results are better than average for the category over all time periods and it done well recently with a one-year gain of 15.7 per cent. Volatility is slightly better than average. This is one of the best choices in the International Equity category if you have the price of admission (at least $5,000, depending on how you purchase the units).
Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter that provides advice on fund selection and strategies. For subscription information: www.buildingwealth.ca/promotion/50plusproducts.htm