Mention it and eyes tear. Memories of Japan, China, and Mexico return. Over the last 15 years, investing overseas meant long periods of misery, relieved by moments of ghastly punishment.
The only good thing you can say: it's more entertaining to lose money in Brazil than in Peoria.
In the future, the former international investor says, they'll venture no further than the International House of Pancakes. According to Morningstar the average international fund drew an annual return of 7.32 percent over the last three years. During the same period, domestic funds earned 11.43 percent.
The disappointment doesn't stop there. Comparing the performance of the average domestic and international funds over the last 5, 10, and 15 years, I found that international funds trailed in every time period. The figures are shown in the table below.
International Funds Trail Domestic Funds--- Whenever
|Period||Domestic Funds||International Funds||Difference|
|1 year||- 0.21||-17.00||-16.79|
|3 years, annualized||11.43||7.32||- 4.11|
|5 years, annualized||14.80||6.46||- 8.34|
|10 years, annualized||15.64||7.33||- 8.31|
|15 years, annualized||13.65||7.75||- 5.90|
Source: Morningstar Principia, December 31, 2000 dataNo relief, not ever.
Worse, they trailed by devastating amounts. If you had invested $10,000 in the average domestic equity fund 15 years ago, it would have grown to $68,162. The same investment in the average international equity fund would have grown to $30,638. The $38,000 difference would pay for a rather nice world tour, Beluga included.
With such a dismal track record, you might conclude that international investing was a waste of time, money, and newsprint.
Well, I have a surprise for you.
International investing hasn't fared so badly if you are an installment investor--- the kind who invests a small sum, month after month. Over the last three years investing $100 a month in an international fund would have provided a slightly higher return than putting the same money in a domestic equity fund. While installment investments in the average domestic equity fund investment grew to $4,146, the average for international fund was slightly higher, $4,191.
That's not a big advantage, to be sure. It might also disappear in a single month. But it tells me that international investing isn't as horrible as the figures for lump sum investing suggest. That's important because most of us are installment investors, not lump sum investors. It also means that international investments still have a place in our portfolios.
Comparing Installment Investing, Domestic and International
|Domestic equity (92)||$5,655||$4,146||$3,261|
|International equity (23)||$5,086||$4,191||$3,778|
Source: Morningstar Principia, based on most popular funds used in 401k accountsSo which are the best and worst of the international funds most commonly used in 401k plans?
The top three were Oppenheimer Global ($5,086), Janus Overseas ($4,544), and Putnam Global Equity ($4,484). The bottom three: Fidelity Europe ($3778), T. Rowe Price International Stock ($3,780), and Fidelity Advisor Overseas Institutional ($3,815). The three funds with the most 401k fund assets were very competitive with the average domestic equity fund. American funds' EuroPacific Growth, for instance, has a whopping $12.6 billion in 401k assets according to Pensions and Investments magazine. It returned the installment investor $4,089. Janus Worldwide, with $10.5 billion returned $4,308. And American Funds' New Perspective, with $8.00 billion in assets, returned $4,293.
The performance surprise?
Fidelity. As you might expect from the dominant provider of 401(k) funds and services, seven of the 23 international funds with the most 401k plan assets come from Fidelity. What's surprising is the performance.
Six of their seven are below average for the group. Fidelity funds occupy 4 of the bottom 5 positions. Fidelity Overseas, the largest of their offerings with $3.3 billion in assets, ranked 20th of 23 with a three-year accumulation of $3,816.