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Value Line’s Global Equity objective group consists of mutual funds that can own stocks from any country in the world. This is very different from the foreign objective, in that global funds can own U.S. stocks while foreign funds specifically cannot. This is an important distinction about which investors using an asset allocation model should be aware, as the domestic component of a global fund can throw off certain allocations if the fund’s portfolio isn’t properly accounted for in the larger asset allocation plan.

Still, for some investors who are seeking international exposure but are also concerned about the risks of owning a fund that invests exclusively in foreign stocks, a global fund might work very well. The problem, however, is that many of these funds place a significant amount of their portfolios in U.S. stocks. This tends to make their portfolios very close in nature to growth funds. Thus, it is important to review a global fund’s holdings carefully to see if it is a good fit. Moreover, it might make sense to compare a final list of candidates from this objective group against more broadly invested growth funds.

Funds in the global objective group are, by design, generally well diversified. In fact, some funds in this group actually use the word “world” in their names to express just how broad their investment mandate is. Despite that broad mandate on the country front, many here take specific investment approaches, such as focusing on small cap companies, dividend paying companies, or growth/value investment styles. There are also a number of funds here that are designed to be the sole stock offering in a portfolio.  

Over the long term, the Global Equity objective group has been a good performer relative to the broader market, as measured by MSCI WORLD Index. For the 10-year period ended October 31, 2012, the group had an annualized gain of 7.8%, while the MSCI WORLD Index reported an annualized gain of 6.0%. Over the trailing five and three year periods, the group had a gain of -2.7% and 8.3%, respectively, while the Index reported a loss of 5.0% and a gain of 5.6%, respectively. During the one-year period ended October 31, 2012, the Global Equity objective group reported a gain of 8.2%, compared to a gain of 6.9% for the MSCI WORLD Index. The group has an average Risk Rank of 3, indicating that funds in this group might appeal to many investors, who would only need to accept an average level of risk. 

One fund with a relatively high one year return through October 31, 2012 is Aberdeen Global Small Cap (WVCCX). The fund seeks long-term growth of capital by investing in equity securities of small U.S. and foreign companies. As a non-fundamental policy, it will invest at least 80% of its assets in equity securities of small companies from a broad range of countries, including the U.S., and at least 40% of assets in companies located or conducting a majority of their business outside the U.S. 

The fund considers a "small" company to be one with a market capitalization in the range of capitalizations of companies in the MSCI World Small Cap Index. Recently, the MSCI World Small Cap Index included companies with market capitalizations between $23.6 million and $6.0 billion.


The fund will diversify its investments across companies, industries and countries.
The Fund's equity holdings may include:

•  common stocks and preferred stocks;
•  rights and warrants;
•  securities convertible into common stocks; and
•  partnership interests.

The Fund may invest:

•  up to 20% of net assets in debt securities;
•  up to 10% of net assets in private funds that invest in private equity and in venture-capital companies;
•  up to 35% of net assets in emerging markets securities;
•  without limit in special-situation companies; and
•  without limit in foreign securities.

Another fund with a relatively good year-to-date return through October 31, 2012 is Liberty Street Horizon A (LSHAX). The fund's sub-advisor is Horizon Asset Management LLC. In order to best implement its investment philosophy Horizon may allocate assets of the fund across the following strategies. A portion of the fund's assets is managed using Horizon's Core Value strategy, which relies on Horizon’s in-house research to identify companies possessing under-appreciated business models, including businesses that tend to be relatively protected from severe price competition or technological obsolescence which, as a consequence, Horizon believes can sustain high returns on equity.

In addition, portions of the fund's assets are managed using Horizon's Research Select and Spin-Off strategies. Research Select involves the selection of investments in the areas of catalyst driven and event driven opportunities, in distressed securities, in companies that Horizon believes have certain assets whose true values are not fully reflected on their balance sheets, and in securities with pricing anomalies and other areas of inefficiency. 

The Spin-Off strategy seeks to identify inefficiencies in the pricing of companies that are at transitory points in their business cycles with a particular focus on corporate divestitures, carve-outs, and other forms of corporate restructurings. The fund also invests in specialty stocks that Horizon believes maintain the most favorable risk/reward characteristics. 

A third fund with very good return for 2012 is Kinetics Paradigm Fund A (KNPAX). This non-diversified fund invests all of its investable assets in the Paradigm Portfolio, a series of Kinetics Portfolios Trust. Under normal circumstances, the Paradigm Portfolio invests at least 65% of its net assets in common stocks, convertible securities, warrants and other equity securities having the characteristics of common stocks (such as ADRs, GDRs and IDRs) of U.S. and foreign companies, and in ETFs. The Paradigm Portfolio will invest in companies that the investment adviser believes are undervalued, that have , or are expected to soon have, high returns on equity and that are well positioned to reduce their costs, extend the reach of their distribution channels and experience significant growth in their assets or revenues.

The Paradigm Portfolio may invest up to 20% of its total assets in convertible and non-convertible debt securities rated below investment grade, also known as junk bonds, or unrated securities which the Investment Adviser has determined to be of comparable quality. 

The investment adviser selects portfolio securities by evaluating a company’s positioning and traditional business lines as well as its ability to expand its activities or achieve competitive advantage in cost/profitability and brand image leveraging.  The adviser also considers a company’s fundamentals by reviewing its balance sheets, corporate revenues, earnings and dividends. 

Sell decisions are generally triggered by either adequate value being achieved, as determined by the investment adviser, or by an adverse change in a company’s operating performance or a deterioration of the company’s business model.  A sell trigger may also occur if the adviser discovers a new investment opportunity that it believes is more compelling and represents a greater risk reward profile than other investment(s) held by the Paradigm Portfolio. 

In the table below, we have listed 10 top-performing funds through October 31, 2012 that we follow in our Fund Advisor database.

  

10 Top Global Equity Funds Performance

 

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

Aberdeen Global Small Cap Fund A

WVCCX

27.71

2.41

11.56

8.81

0.80

Liberty Street Horizon Fund A

LSHAX

25.43

1.67

10.44

  

5.64

-8.16

  

Kinetics Paradigm Fund A

KNPAX

21.19

1.77

9.02

3.56

-5.79

Kinetic Small Cap Opportunity Adv. Fund A

KSOAX

21.34

1.15

8.59

2.06

-6.27

Fidelity Adv. Value Strategies A

FSOAX

20.68

0.52

6.81

5.16

-0.48

MFS Global New Discovery Fund A

GLNAX

20.27

-0.64

6.84

6.84

2.07

Alpine Global Consumer Growth Fund A

AWCAX

19.66

0.94

6.25

0.94

 

American Funds New Economy Fund A

ANEFX

18.80

-0.98

5.14

2.24

-0.01

Kinetic Global Fund Adv. Fund A

KGLAX

18.62

3.56

9.93

4.03

  

Heartland International Small Cap Fund

HINVX

18.19

1.79

12.56

4.76

  

Global Equity Objective Group

  

11.72

-0.42

4.92

0.56

-2.70

  

At the time of this articles writing, the authors did not have positions in any of the companies mentioned.