Global mutual funds that invest in domestic and overseas stocks are the flavor of the moment, and several well-respected asset managers intend to launch such funds in the coming weeks.
The tactic may stem from the search by asset managers for "a good, new marketing pitch," said Reuben Gregg Brewer, director of research at Value Line Inc. of New York. It also may result from a belief that because international funds have been doing so well for so long, global funds — by virtue of their domestic exposure — may be the next to outperform, suggested Tom Roseen, a Denver-based senior research analyst with Lipper Inc. of New York.
Nevertheless, such funds pose a dilemma for financial advisers such as Adrian Eddleman, founder and chief investment officer of Eddleman & Eddleman LLC, a Jackson, Tenn.-based advisory firm.
"I think it would better to have a global fund than just domestic funds," he said, but an "astute" adviser may be able to address a client's risk-return needs more specifically using a combination of international and domestic-stock funds rather than global funds.
Mr. Eddleman declined to provide a figure for his firm's total assets under management.
Advisers shouldn't necessarily rule out global funds just because they have the flexibility to invest both domestically and overseas, said Bridget B. Hughes, a senior analyst with Morningstar Inc. of Chicago. In the hands of a good manager, such flexibility can be a plus, she said, praising the skills of those asset managers intending to bring global funds to market.
The Vanguard Group Inc. of Malvern, Pa., filed a registration statement with the Securities and Exchange Commission this month for Vanguard Total World Stock Index Fund. The global fund will offer three share classes — investor, institutional and ETF shares — which are expected to be available in the second quarter of 2008.
It will be the firm's first passively managed global index fund.
The new fund will seek to track the performance of the FTSE All-World Index, a float-adjusted, market-capitalization-weighted index designed to measure the equity market performance of large- and mid-cap stocks worldwide.
The well-respected small-cap-equity manager Wasatch Advisors Inc. of Salt Lake City filed this month to offer the Wasatch Global Opportunities Fund. It will invest in both domestic and overseas companies that have market capitalizations of less than $5 billion at the time of purchase. And value manager Dodge & Cox of San Francisco filed a registration statement with the SEC in February announcing its intentions to offer the Dodge & Cox Global Stock fund.
It's the first fund started by the company since it launched the Dodge & Cox International Fund in 2001.
"I think the quality of the research behind these funds is pretty intriguing," Ms. Hughes said.
But how are advisers to use such products?
Rather than use global funds, "we use more narrowly focused" international and domestic funds, said Diane M. Pearson, an adviser with Legend Financial Advisors Inc., a Pittsburgh-based firm with $350 million under management.
There are advisers that will take that approach, said Joseph Brennan, a principal with Vanguard and head of its portfolio review group. But there are also advisers who will view something such as the Vanguard Total World Stock Index Fund as a good core holding, he said.
"The globe is opening up in terms of investments," Mr. Brennan said. As a result, some investors will want a more global core holding, he added.
Of course, with more domestic companies doing business overseas, it could be argued that just by holding a large-cap-domestic-stock fund investors get at least some exposure to overseas markets.
U.S. companies that do business overseas are definitely becoming a more prominent part of the fund managed by Shawn C. Price, a portfolio manager with Navellier & Associates Inc. in Reno, Nev., subadviser to the $1 billion Touchstone Large Cap Growth Fund, offered by Touchstone Advisors Inc. of Cincinnati.
However, according to Ms. Hughes, it would be a mistake to think you could just replace a global fund with something like a large-cap fund. A global fund's stated mission is to give investors exposure to at least some overseas stocks, she said. As a result, such a fund is likely to watch overseas markets more closely and is in a better position to make informed overseas bets, Ms. Hughes said.
E-mail David Hoffman at [email protected].
