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Global investments pay off
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January 30, 1998: 3:48 p.m. ET
Mutual funds and ADRs can help you put money into international markets
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NEW YORK (CNNfn) - Skittish about investing overseas after watching Asian markets hemorrhage?
Many Wall Street pros insist it makes even more sense these days to give your portfolio an international perspective.
While the U.S. market may flatten out in 1998, some industry watchers think Europe and other developing economies will deliver better returns. The trick is choosing among the different investing options.
"Now is the time to invest overseas," said Robert Goodman, senior economic adviser at Putnam Investments in Boston. "I have not felt this strongly about any investment opportunity since the early 1980s."
Yet international investing can be daunting because of differences in languages, cultures and time zones. Overseas companies have fewer reporting requirements than U.S. firms, and political turmoil and corruption can affect your bottom line.
Another potential pitfall is currency fluctuations: You may make a killing in an emerging market and then discover when you exchange currencies you've actually lost money.
Some advisers, such as Jim Owen, executive vice president at Husic Capital Management in San Francisco, think a better alternative is to buy stock in U.S. companies with substantial overseas operations.
"In the last six years, overseas markets have been poor investments," Owen said. He recommends multinational companies such as Coca-Cola (KO).
Of course, you could call a major brokerage and buy stock directly. Just be prepared to spend a lot of money, Owen said.
"Most people should stick with safer options," Owens said.
The easiest way to put your money abroad is to buy an open-end, diversified mutual fund, said Mike Breen, an international fund analyst with Morningstar Inc., a research company in Chicago. One step up from that would be a closed-end, diversified mutual fund, he said.
You buy and sell shares of an open-end fund through a fund company. A closed-end fund, often used in more volatile emerging markets, is a like a stock that trades on an exchange. The difference is you can buy and sell a close-end fund at a premium or a discount of its net asset value.
Leah Zell, portfolio manager of the Acorn International Fund in Chicago, argues a mutual fund does the homework for you. She said she has a team of six analysts who meet with local brokers and companies to learn all they can about a market.
"I go to Europe to see companies six or eight times a year," Zell said. "I see on average about 200 companies a year. The same thing is true for the rest of the team."
Rosemary Sagar, managing director and head of international investments at U.S. Trust, interviews a company's suppliers and competitors. She heads the Excelsior International Fund and the Excelsior Pan Europe Fund.
Sagar also looks at where a company does business. If they're heavily tied to Asia, for example, they may have suffered a setback recently.
She's particularly optimistic about investing opportunities in Europe as countries prepare to launch a single currency, the Euro. She's also bullish on Hungary, the Czech Republic, Thailand and Turkey.
"European markets are coming out of a slump," Sagar said. China has long-term possibilities, she said, but she wouldn't invest there until next year.
Some funds invest in a region of the world or a country, Breen said. But the risk is greater by making a more "concentrated bet," with your investment dollars, he said.
"If 10 percent of your portfolio is abroad, why would you want to put it all in Spain?" Breen asked.
Another problem with country funds is they fluctuate wildly from year to year. One certain way to fail is to try and chase "last year's success," Owen said.
Sagar thinks country funds only make sense if you can buy them at a substantial discount.
And at all costs, Sagar said, avoid index funds. The problem with international index funds is some markets are very small. In Switzerland, for example, the top 10 stocks account for 72 percent of the market.
The more sophisticated investor can put money directly into an overseas company by buying American Depositary Receipts (ADRs) through a U.S. bank. ADRs are shares of an international company that trade in the United States.
"It gives the retail investor all the ease and convenience of investing overseas," said Julio Lugo, vice president of the ADR division at Bank of New York.
There are more than 1,900 ADRs that trade over the counter or on U.S. exchanges, he said.
ADR investors can get annual reports and other information on an overseas company through the bank, Lugo said.
Sagar recommends ADRs such as AXA-UAP (AXA), a French financial services company; Sony (SNE), the Japanese electronics giant; Telebras (TBR), a telephone company in Brazil; and Elf Aquitaine (ELF), a French oil company.
But Sagar and Zell point out that your options will be limited with ADRs. Only the largest overseas companies have ADRs -- about 10 percent of the international market.
Zell mentioned that her fund invested $8.5 million in 1994 in a Finnish computer services company called T.T. Titeo. Since then, the stock has increased in value to $56 million. An individual investor wouldn't be able to make take advantage of such stellar growth.
"We've made seven times our money on the stock, and you can't buy that here," Zell said.
-- By staff writer Martine Costello
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