What's up -- or should we say down -- with Masters' Select International? The fund, one of those we recommended in our May cover story ("The 25 Best Funds"), sank 6.9% in the three months to July 13. That's eight percentage points behind its benchmark, Morgan Stanley's Europe, Australasia, Far East (EAFE) index. Meanwhile, another foreign fund on our list, T. Rowe Price International Discovery, went the other way, gaining 3.5%. Our other fund picks -- as well as the broader stock and bond markets -- have barely budged since the May issue went to press, but neither has the U.S. stock market.
Masters' was hurt by an unusually high allocation -- 18% -- in stocks of emerging markets. They were weak because of concerns about rising interest rates and attempts by authorities in China to slow that nation's torrid economy. It didn't help that Masters' has had a below-average weighting in Japan, which had one of the best-performing markets during this period. The fund has 11% in Japan, while Japan accounts for 23% of EAFE.
Ken Gregory, who supervises the fund's five independent managers, says that, in the past, whenever Masters' Select International has experienced a period of poor relative performance, it has subsequently rebounded in the ensuing months to handily beat its benchmarks. There's no reason not to expect another bounce back.
On the other hand, Discovery, which invests in small foreign companies, benefited from a 30% allocation in Japanese stocks. Good stock picking in Australia and Europe also aided performance, says Kurt Umbarger, vice-president of T. Rowe Price International.
Overall, each of our three portfolios closely tracked the major indexes. For investors in these portfolios, as well as any of the recommended funds, we'd advise staying the course.
MAGAZINE
