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There is at least one good reason why most investors should consider
investing a portion of
their portfolios in foreign stocks:
 | Foreign stocks have imperfect correlations with domestic stocks,
so including them in a portfolio should improve the
portfolio's risk/return characteristics. |
Additionally, there is good reason to believe that large value stocks will,
in the long run and on average, tend to have higher risk-adjusted returns than
large growth stocks.
For more information on investing overseas, see
here.
There are several similar-seeming investment options
available. Which is best?
The funds are listed in rough overall
order of preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
| DFA International Value Portfolio (DFIVX). E/R: 0.45%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index. As of 01/31/06, this fund's weighted average
book to market ratio was 56% more valuey than the iShares MSCI EAFE Value
Index Fund (EFV).
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| iShares MSCI EAFE Value Index Fund (EFV). E/R:
0.40%. This ETF tracks the MSCI EAFE Value Index of valuey large cap
stocks from non-North American developed market countries. For more information on ETFs, see here.
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| Vanguard International Value Fund (VTRIX). E/R: 0.39.
This is an actively managed fund. This fund simply isn't very valuey. DFIVX is DRAMATICALLY more “valuey” (i.e., significantly higher b/m ratio)
than this fund. As of 12/31/05, the DFA fund's b/m ratio was 24%
more "valuey" than the Vanguard fund's.
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| DFA Tax-Managed International Value Portfolio (DTMIX). E/R: 0.55%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index. The fund manages to minimize capital gains
distributions. As of 01/31/06, this fund's weighted average book to
market ratio was 51% more valuey than EFV below.
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| iShares MSCI EAFE Value Index Fund (EFV). E/R:
0.40%. This ETF tracks the MSCI EAFE Value Index of valuey large cap
stocks from non-North American developed market countries. As an ETF,
this fund is expected to be perfectly capital-gains tax efficient. For more information on ETFs, see here.
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| DFA International Value Portfolio (DFIVX). E/R: 0.46%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index.
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| Vanguard International Value Fund (VTRIX). E/R: 0.39%.
This is an actively managed fund. This fund simply isn't very valuey.
Both DTMIX and DFIVX are DRAMATICALLY more “valuey” (i.e., significantly higher b/m ratio)
than this fund. As of 12/31/05, DTMIX's b/m ratio was 20%
more "valuey" than the Vanguard fund's and DFIVX's b/m ratio was 24%
more "valuey" than the Vanguard fund's. |
This web page contains the current opinions of Eric E. Haas at the time it is
written — and such opinions are subject to change
without notice. This web page is for educational purposes only —
we believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
