Tag Archives: family

Foreign Funds To Buy On Worst U.S. Funds Outflow Since ’93

Domestic equity-focused funds are facing a tougher time in terms of fund outflows than what they experienced during the financial crisis. According to Morningstar data, US-focused mutual funds and exchange traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. This is higher than any full-year outflows since 1993. Continued transfers from open-end mutual funds to collective investment trusts at Fidelity triggered much of the outflows. In contrast, investors have poured $179.2 billion in these seven months into funds focused on international equities. This is close to the full-year peak of $201.6 billion recorded in 2013. In response to this outflow, we will pick 3 top-ranked funds for investors interested in foreign mutual funds. Before doing so, let’s look into some other details. US versus International Markets International markets have attracted investors backed by the improving conditions. Greece debt negotiations had been a concern through most of 2015’s first half, but Europe as an investment destination had other attractions. The monetary stimulus plan, for example. China had a great bull bun before it hit a rough patch in June, though. Japan too has been profitable, and the country’s equity funds notched the best gains in first half of 2015. As of July 31, the Standard & Poor’s 500 (.INX) returned 2.2%. In contrast, MSCI EAFE Index had returned 6.5%. Morningstar notes that the consensus opined that the US is in late stages of bull market. Foreign country stocks are said to be cheaper on a fundamental level. Investors are aware of the US and Europe’s “different points in the economic cycle”, which is being revealed in the flows. The fund outflows in 2015 so far has been worse than that of the recession years. Since 2007, the US has witnessed outflows 6 times (including YTD 2015). International equity funds have witnessed outflows only once in 2008. Active versus Passive Fund Flow Inflows into passive funds failed to offset the outflows from the active US equity funds. In July alone, estimated net outflows from US equity funds in July increased to $14.3 billion from $8 billion in June. The active funds saw outflows of over $20 billion in July, while inflows of over $6 billion were recorded on the passive side. Over the last 1-year period, over $158 billion flowed out of active funds, while the passive funds added over $140 billion. Meanwhile, international equity funds saw inflows on both active and passive sides. Active and passive funds added over $3 billion and $18 billion, respectively. Category and Fund Family Performance The foreign large blend category has emerged as the best one. Inflows to this category were higher than those to the other top four categories, says Morningstar. Assets of foreign large blend funds are concentrated in Europe. Along with this, European stock also featured in the top 5 list. So, Europe did prove to be a favorable investment decision in July. As for the laggards, Large Growth , Large Value and Large Blend were the worst losers. These are almost all the representative categories of the US markets. Coming to the fund families, only 3 out of the 10 fund families under the study witnessed inflows on the active side in July. These are american funds SPDR State Street Global Advisors and J.P. Morgan. Meanwhile, Fidelity Investments witnessed the biggest outflows on the active side for both July and the last 1-year period. Again, much of Fidelity’s outflows indicated continued transfers from mutual funds to collective investment trusts. Fidelity witnessed outflows of over $10 billion in July and close to $19 billion over the last 1-year period. Fidelity Contrafund Fund No Load (MUTF: FCNTX ), Fidelity Growth Company Fund No Load (MUTF: FDGRX ) and Fidelity Low-Priced Stock Fund No Load (MUTF: FLPSX ) accounted for outflows of $2.36 billion, $2.1 billion and $1.46 billion in July. Franklin Templeton Investments was also a big loser for both periods, while Vanguard and T. Rowe Price witnessed outflows in July against inflows over the last 1-year period. If we look into 5 of the bottom-flowing active funds, 3 of them are from Fidelity. 3 Non-US Mutual Funds to Buy Morningstar notes that the fund flows indicate investors’ expectations for the future. So, investors looking to buy non-US Equity mutual funds should consider the following funds that either carry a Zacks Mutual Fund Rank #1 or Zacks Mutual Fund Rank #2. Matthews Japan Fund Investor (MUTF: MJFOX ) invests most of its assets in preferred and common stocks of firms located in Japan. The fund may invest in companies of all sizes, but the adviser expects them to be mid- to large-cap firms. MJFOX carries a Zacks Mutual Fund Rank #2. MJFOX has returned 22.9% so far this year, and its one-year return stands at 15.3%. The 3- and 5-year annualized returns are 18.1% and 14%, respectively. The fund carries an annual expense ratio of 1.03%, lower than the category average of 1.43%. MJFOX carries no sales load. Cambiar International Equity Fund Investor (MUTF: CAMIX ) invests a large chunk of its assets in equity securities of medium- to large-cap non-US companies. For greater liquidity and lesser custodial expenses, CAMIX buys American Depositary Receipt listings of foreign firms on the US exchanges instead of buying them on foreign exchanges. CAMIX carries a Zacks Mutual Fund Rank #1. It has returned 12.5% so far this year and its one-year return stands at 7.6%. The 3- and 5-year annualized returns are 12.1% and 10.3%, respectively. CAMIX carries an annual expense ratio of 1.09%, lower than the category average of 1.17%. The fund carries no sales load. Fidelity Overseas Fund No Load (MUTF: FOSFX ) seeks long-term capital growth. It invests a large portion of its assets in non-US securities. Management considers the size of the market in each country and region relative to the size of the world market as a whole. FOSFX invests primarily in common stocks. The fund offers dividends and capital gains annually in December. The Fidelity Overseas fund has returned 4.9% and 8.6% over the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 16.7% and 16.3%. FOSFX, managed by Fidelity, carries an expense ratio of 1.04% as compared to a category average of 1.17%. FOSFX carries no sales load. Original Post

It’s August 13, 2015 – Do You Know What’s In Your International ETF?

Summary Investors desiring true diversification do well to have some international exposure in their portfolio. However, not all “general” international ETFs are the same, not by a long shot. Knowing what is in your ETF is crucial to making correct decisions, in line with your investment viewpoint and strategy. At least some of my readers may well remember a Public Service Announcement that ran during the 1960s, ’70s, and ’80s according to Time magazine . The question was: ” It’s 10 p.m. Do you know where your children are? ” Historically, this was not simply a general reminder to parents but also due to the fact that curfews were in place in various areas due to riots and other public unrest. A failure to know where one’s children were could lead to complications for the family. When investing, clearly it is beneficial to know what you are investing in. It’s not so much a question of what your strategy is , but rather knowing if the vehicles you have chosen to implement that strategy are actually doing so. All International ETFs Are Not Created Equal As I have suggested previously , every investor should consider holding at least some percentage of foreign stocks in their portfolio. Put simply, such exposure can provide both diversification and the potential for greater growth as compared to a portfolio comprised solely of U.S. stocks. But back to the heading of this section; Not all international ETFs are created equal. For purposes of this article, I am hoping to encourage you to evaluate what, at least in broad terms, is in your international portfolio; to make sure it is actually what you think is in your portfolio. In this article, we will consider that topic using four Vanguard international ETFs that I will describe as “general;” in other words they are not country or even region-specific (e.g. Asia or Europe). Those ETFs are: Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) Vanguard Total International Stock ETF (NASDAQ: VXUS ) Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) To get us started, please take a look at the following table, where I have summarized some key data points featuring the sorts of things you may wish to evaluate. VEA, VEU, VXUS, VWO: Comparison of Key Data Points ETF Index Tracked AUM (in $ billions) # of Holdings Expense Ratio Exposure to China VEA FTSE Developed ex North America 52.1 1,398 .09% 0.0% VEU FTSE All-World ex US 25.5 2,490 .14% 5.4% VXUS FTSE Global All Cap ex US 168.4 5,904 .14% 5.2% VWO FTSE Emerging 65.4 1,022 .15% 28.3% If you have read some of my other articles, you probably already know where I am headed with most of the data points I selected. The expense ratio is certainly important since, the lower it is, the closer your ETF will track its selected index and the more money will flow to your pockets. The Assets Under Management (AUM) will affect how liquid the fund is, and the number of holdings gives you some idea how well-diversified the fund is. I’d like, however, to talk about a somewhat random data point I threw in; Exposure to China . As you may be aware, the Chinese stock market has experienced some sharp declines of late. As you can quickly see from the table, the effect of this on our four ETFs ranges from “none at all” for VEA to “quite significant” for VWO. Looking backwards, if one owned VWO and was not aware of this, its recent performance may have come as a shock. Looking forwards, however, VWO may be exactly the ETF you wish to get into, or add to your position in, if you wish to gain some exposure to a possible recovery. With that background, let’s next turn to a one-year chart of the recent performance of each of our four ETFs. VEA data by YCharts No doubt, your eye was immediately drawn to that 17.5% decline in VWO. Without a doubt, this past year has been very challenging for emerging economies. Hopefully, investors with shares in VWO understood this potential and had it weighted appropriately in their portfolios. But the second thing you likely notice is that our 3 other ETFs were affected to very different degrees by this. VEA, which sticks purely to developed markets, has dropped a relatively modest 3.29% over that same period, while both VEU and VXUS were somewhere in between. Let’s now take a quick look at each of the 4 ETFs and how investors may choose among them. In each case, I will make the title of the section a link to that ETF’s fact sheet, in case you wish to examine one or more further. Vanguard FTSE Developed Markets ETF Put simply, as reflected in the name of the index it tracks, this ETF sticks strictly to developed markets outside North America. Please see this article for more definition around the differences between developed and emerging markets. NOTE: Vanguard recently announced that VEA will transition from the FTSE Developed ex North America Index to the FTSE Developed All Cap ex US Index . This is actually sort of a big deal. Currently, this ETF has no exposure to Canada, which could be a negative factor for some investors. This change will correct that, including 234 Canadian stocks and offering exposure to a country rich in natural resources. Of the four, at .09% VEA has easily the lowest expense ratio; extremely low for an ETF investing outside the U.S. At $52.1 billion of AUM, it is a huge fund, offering wonderful liquidity and a tight trading spread of .02%. Over the past 12 months, its distribution yield (distributions over the past 12 months divided by the fund’s Net Asset Value) has been 2.83%. VEA is a wonderful option for the investor who wishes to stay completely away from the volatility of emerging markets. Alternatively, it can be mated with VWO to introduce exposure to emerging markets at whatever level the investor desires, as opposed to the defined exposure offered by VEU and VXUS. Vanguard FTSE All-World ex-US ETF and Vanguard Total International Stock ETF I am going to consider both of these together because there are many similarities between the two. Their expense ratios are the same, at .14%. Their Top 10 holdings are the same. Their exposure to emerging markets is roughly the same; 19.00% for VEU and 18.90% for VXUS. Their exposure to China, which I featured earlier, is also roughly the same. Of the two, VXUS has slightly more exposure to Canada. What, then, is the main difference? Have a look back at our comparative table. You will notice that VEU has 2,490 holdings vs. VXUS’s much larger number of 5,904. This is because the index VEU tracks sticks mostly to large and mid-cap companies, whereas the index VXUS tracks extends all the way down into smaller companies. Interestingly, the differences are a mixed bag. VXUS is almost 7 times the size of VEU in terms of AUM. At the same time, its trading spread is .04% vs. .02% for VEU. As can be seen in the performance chart I featured, VXUS is slightly more volatile due to its inclusion of smaller stocks. VEU comes out slightly ahead in the battle of distribution yields; 2.81% to 2.74%. Really, your decision may come down to two factors: How much exposure you want to Canada (VXUS has 6.6% vs. 5.9% for VEU). Whether you desire the slightly greater growth potential of small stocks in return for potentially greater volatility. Vanguard FTSE Emerging Markets ETF As featured in the previous discussion of VEA, VWO makes a nice complementary ETF to include exposure to emerging markets at whatever level you desire. It is true that you could also add VWO to either VEU or VXUS to weight emerging markets even more heavily. However, the calculation gets a little murkier and you are also losing out on VEA’s wonderful .09% expense ratio. VWO carries an expense ratio of .15% and a distribution yield of 2.82%. NOTE: Vanguard recently announced (see link under VEA) that VWO will transition from the FTSE Emerging Markets Index to the FTSE Emerging Markets All Cap China A Inclusion Index . This will add exposure to China A-Share stocks as well as a much larger number of small-cap stocks. Similar Application Across Other ETF Families Similar concepts can be applied across other ETF families. For example, if you are a Fidelity Brokerage client, you may wish to take advantage of commission-free trading to do something similar with iShares ETFs. I actually built a portfolio doing this in this article on my personal blog. Feel free to have a look to see a similar examination and comparison of the iShares Core MCSI EAFE ETF (NYSEARCA: IEFA ), iShares Core MCSI Total International Stock ETF (NYSEARCA: IXUS ) and iShares Core MCSI Emerging Markets ETF (NYSEARCA: IEMG ). Summary And Conclusion Just as that Public Service Announcement reminded parents of the importance of knowing where their children were in the late-evening, it is important for each investor to understand the contents of their portfolio. Hopefully, using the example of international equities, I have been able to demonstrate why this is the case. Happy investing! Disclosure: I am/we are long VEU, VWO, IXUS. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.