FUND DU JOUR: GLOBAL SECTOR PORTFOLIOS: TIRED OF U.S. EQUITIES? TRY SOMETHING EXOTIC, HARD TO PRONOUNCE AND JUST A TAD RISKY

As fund companies seek to convince investors that some of the best buys can be had abroad, global sector funds are playing an increasingly important role.

While some fund complexes have rolled out new global sector funds in recent years, others have renamed existing sector funds, adding the word global to names of portfolios that already invest overseas.

In either case, they are touting the funds as a way to tap into companies with lower valuations than their U.S. counterparts and gain access to firms, like power companies and financial institutions, in industries that are benefiting from such global trends as deregulation.

“Funds need to have something new to offer investors,” says Don Phillips, president and chief executive officer of Morningstar Inc., the Chicago-based fund tracker. “That’s why I would argue that positioning funds as global sector funds may be a little more of a marketing change than an investment change.”

The biggest boom in global sector funds took place in 1994, when eight were launched, according to a search of Morningstar’s database for sector funds whose names contain the words global or international.

Still, their ranks have increased significantly during the past decade. Today, there are more than 40 such funds, up from 24 in 1993 and just 10 in 1988. The grandfather of global sector funds, according to Morningstar, is the $326.5 million Van Eck International Investors Gold, which was rolled out in January 1956.

some are hot, some are not

“If you looked at sector funds anytime during the last decade,” adds Mr. Phillips, “you would see that the average fund had a greater international component to it than your typical diversified fund.”

Like other types of funds, global sector funds are a mixed bag when it comes to performance. While precious metals and natural resources funds have taken a beating during the past 12 months, real estate, technology, health, financial services, communications and utilities funds have fared decently — the latter two generally outperforming the rest.

Many global sector funds have beaten diversified global funds during the same period: Of the global and international sector funds tracked by Morningstar, about half beat the Morgan Stanley Capital International World Index’s 14.18% return (excluding dividends) during the one-year period ended June 23.

Indeed, the $70.1 million Gabelli Global Interactive Couch Potato Fund, a communications fund, was the No. 1 global fund for the 12 months ended May 31, posting a gain of 46.69%, compared to an average return of 18.57% for the 192 global funds tracked by Lipper Analytical Services Inc. Global media and entertainment companies, ranging from French multimedia giant Havas SA to U.S.-based Viacom Inc., make up the fund’s largest common stock holdings, accounting for 12.9% of total assets.

Still, other global sector funds have had lackluster, even dismal performance. Templeton Global Real Estate, for instance, fell 5.28% for the 12-month period ended June 23, while the $99.3 million U.S. Global Resources Fund plunged 28.88%.

In the end, the same lesson applies to global sector funds that applies to their domestic brethren: Any sector can turn out to be a dog. In addition, sector funds shouldn’t be a substitute for proper asset allocation within an investor’s portfolio, says Marc J. Gabelli, managing director of Rye, N.Y.-based Gabelli Funds Inc.

“What (investing in global sector funds) calls for is more of a sophisticated investor,” says Mr. Gabelli, who runs the Couch Potato and the $152.6 million Gabelli Global Telecommunications funds.

“If you invest in Gabelli Asset Fund,” Mr. Gabelli adds, his father, Mario J. Gabelli, “is doing the asset allocation, but with Global Telecommunications, you are making your own sector allocation.”

Communications companies, he says, are benefiting from the importance a lot of countries, including emerging markets like Brazil, are placing on developing their technology and telecommunications infrastructures to become more competitive internationally and create jobs.

Global sector funds allow investors “to go into a dynamic growth industry in an emerging market vs. tapping into a matured one in the United States,” says Mr. Phillips.

INDUSTRIAL STRENGTH

Top-performing global sector funds

FUND YTD 1-YEAR 3-YEAR 5-YEAR

Montgomery Global Comm R 41.10% 40.96% 23.27% 18.87%

BEA Global Telecom Adv 28.93 41.77 — -Dresdner RCM Global Technology 26.81 49.19 — -MSDW Global Utilities B 22.14 29.36 20.20 -Aim Global Telecommunications A 20.00 21.51 14.35 13.70

Gabelli Global Telecom 18.39 34.23 22.94 -John Hancock Global Technology A 18.03 22.71 13.74 22.42

Aim Global Consumer Prod & Svcs A 17.22 38.21 32.38 -Gabelli Global Int Couch Potato 14.29 39.92 24.97 -TCW/Dean Witter Global Telecom B 13.97 22.78 — – Source: Morningstar Inc.