WASHINGTON — The battle to help investors globalize their portfolios has received two more weapons.
WASHINGTON — The battle to help investors globalize their portfolios has received two more weapons.
Ivy Funds of Overland Park, Kan., created two international funds of funds last month that give investors a piece of many overseas plays in one stop.
The Ivy Managed International Opportunities Fund (IVTAX) combines five international Ivy funds that invest in everything from overseas bonds and growth companies to large companies in emerging Asian markets.
The second, the Ivy Managed EuroPacific Fund (IVMAZX) offers a more focused, regionalized investment, according to Stephen Barrett, director of marketing for Ivy Funds, which has $12.4 billion in total assets.
Ivy’s international funds have about $2.5 billion in assets.
Investors in the new funds of funds benefit from two layers of investment professionals, Mr. Barrett said. The portfolio managers of the underlying funds pick investments, while the fund of funds’ active manager, Michael Avery, determines the allocation into each fund.
This strategy allows him to increase investors’ exposure to Europe, for instance, if he thinks they are well positioned at a given time, Mr. Barrett said. Ivy isn’t setting a limit as to how big the funds could grow.
In fact, there are at least 45 international funds of funds already in the marketplace, with $61.6 billion invested in them, according to Chicago-based Morningstar Inc.
Vanguard Total International Stock Index Fund (VGTSX) is the largest, with $22 billion in assets.
The fund invests in three underlying Vanguard international mutual funds and had a return of 8.66% year-to-date through April 27. Its one-year return, meanwhile, was 19.37%, according to Morningstar.
The average for the group was about 6.8% year-to-date through April 27, compared with 15.5% for the Dow Jones Industrial Average.
For investment advisers who are looking to outsource allocation and overlay management, international funds of funds are good products, said Owen Concannon, a senior research analyst at Boston-based Financial Research Corp., a financial services consulting firm. They would be especially good in a 401(k) plan, because investors would need to buy only one product to get international exposure, he said.
The firm expects to see more companies come out with international funds of funds as investors pour more money into overseas investments, Mr. Concannon said.
FRC surveyed 100 advisers late last year to determine whether they were allocating more client money to international investments because that sector has performed well in recent years or because of a belief in the need for overseas exposure.
The research group found that of the three-quarters of advisers surveyed who increased international equity allocation in the previous two years, 80% said that it was because they were looking to improve portfolio diversification, Mr. Concannon said.
“We’re seeing something fundamentally shift in advisers’ attitude to international investment,” he said.
At Chicago-based Mesirow Financial Inc., advisers consistently have recommended about 20% in international equities for at least the past decade, said Neal Price, senior managing director for the investment advisory practice, which has about $23 billion in assets under management.
It is client reaction that has changed in recent years as international investment returns have blossomed, he said.
“In the late 1990s, clients thought we were crazy,” Mr. Price said. “Now they’re asking us if it’s enough international diversification.”
Mr. Price said he typically doesn’t use funds of funds, because the firm would rather control the asset allocation based on client needs, not because of market expectations.
“We want to more tightly control the asset allocation of the portfolio,” he said.
While putting about 20% of client equities into international investments, generally, the firm’s advisers avoid international bonds, because they carry an added currency risk, Mr. Price said.
If a client’s portfolio includes significant real estate exposure, Mesirow will include 20% to 40% in international real estate investment trusts or other global real estate ventures, he said.
Exchange traded funds are another popular international investment tool for some advisers, Mr. Concannon said.
Many of these target foreign large-capitalization stocks, or emerging-markets or overseas real estate, making them useful for advisers who want to specialize within portfolios and want specific country investments. They also are cheaper, because they are index products, Mr. Concannon noted.
