U.S. News is releasing a series of stories highlighting top-rated mutual funds according to various categories. These funds have performed well over the long term, are rated highly among the industry's analysts, and have low minimum investment, making them accessible to all investors—big or small. This is the sixth piece in a series of stories highlighting 10 categories that make up U.S. News's 100 Best Mutual Funds for the Long Term.
Foreign large-blend funds, which provide broad exposure to markets outside of the United States, can be used as a core holding for the international side of your portfolio.
Despite some exposure to the rapidly growing emerging markets, many of these funds suffered the same fate as U.S. large-cap stock funds over the past decade. Two brutal recessions during the past decade took their toll on the returns of stock markets throughout the world. The average fund in the foreign large-cap blend category has returned an annualized 3 percent over the past 10 years. That's almost half of a percentage point lower than the broad MSCI EAFE Index, which measures developed markets in Europe and Asia, but still better than the returns of the U.S. large-cap stocks that make up the S&P 500 Index. The S&P 500 has returned an annualized 1 percent over the same time period.
When distinguishing between funds in this category, investors should be mindful of country exposure. Many foreign large-blend funds have large allocations to emerging markets stocks, which have generated much higher returns than their developed counterparts, but also come with higher volatility. Others funds in the category stick to developed markets in Western Europe, Canada, and Japan.
It's also worth noting that many foreign large-cap blend funds don't hedge their foreign currency exposure—meaning the stocks in their portfolios will be affected by changes in local currency. (The fluctuations of, say, the Euro and the Japanese yen, will impact the returns of these funds.) "If the dollar is weak … it can actually be better as far as your returns," says Morningstar senior fund analyst Gregg Wolper.
Going forward, Wolper says investors in these funds should keep an eye on the effects of the European debt crisis and the growth—or lack thereof—in China. "China's growth has been a great driver for many stocks around the world, not just in China, but in other emerging markets and in developed markets," he says. With that in mind, here are U.S. News's 10 best foreign large-cap blend funds for the long term.
Sextant International (symbol SSIFX). This fund is far from fully invested in the stock market, with more than 30 percent of its total assets residing in cash. A defensive position helped Sextant International during 2008, but the fund lagged somewhat in 2009 as market rallied. The portfolio contains 72 stocks, many of which are natural resource companies like Canadian mining company Teck, the fund's largest holding. Emerging markets stocks account for a quarter of the fund's assets. Its turnover ratio, which measures how often one stock is swapped out for another, is extremely low at 2 percent. Over the past 10 years, the fund has returned an annualized 7 percent. Its annual fees are 1.13 percent.
Fidelity Canada (FICDX). Manager Doug Lober invests at least 80 percent of the fund's assets solely in Canadian stocks or stocks tied to the Canadian economy. Because Canadian financial and natural resources stocks have performed well lately, the fund has blown its peers out of the water, returning an annualized 12 percent over the past decade. It has large holdings in financial, industrial, and energy companies, which all make up a large part of Canada's economy. Annual fees are 1.13 percent.
Ivy International Core Equity (IVIAX). Developed markets in Europe and Asia account for the bulk of this fund's assets, and only about 10 percent of the portfolio resides in emerging markets. The fund holds a mix of banks, telecom, and energy stocks, including large holdings in Credit Suisse, Vodafone, and Shell. Its turnover ratio is just under 100 percent—meaning that it generally replaces its entire portfolio once a year. The fund has gained an annualized 7 percent over the past 10 years and charges annual fees of 1.59 percent.