2 terrific go-anywhere foreign funds

By Morningstar

Go-anywhere foreign funds, which readily consider smaller-cap and emerging-market stocks along with large-cap and developed-market names, have considerable appeal.

For starters, these funds can take full advantage of the fact that there are attractive opportunities across the market-cap spectrum and all over the globe, while their more narrowly focused counterparts cannot.

What's more, not only do these work quite well as stand-alone international holdings, but they can also serve as excellent supplementary overseas offerings. A wide-ranging growth-oriented international fund, for example, can complement a conservative foreign large-value fund quite nicely.

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However, it's awfully tough to find good go-anywhere foreign funds that are open to new investors and reasonably priced. Most foreign large-cap funds pay only limited attention to smaller caps, emerging-market issues or both, whereas many foreign small-cap or midcap offerings focus far down the market-cap ladder. Many of the foreign funds that have thrived with wide-ranging strategies are closed to new investors, including Julius Baer International Equity (BJBIX), William Blair International (WBIGX) and Artisan International Value (ARTKX).

And several of the good ones that remain open to new investors, such as Laudus International MarketMasters (SWOIX) and Quantitative Foreign Value (QFVOX), are pretty pricey.

Fortunately, investors who are drawn to the merits of the go-anywhere foreign funds do have a couple of terrific options:

• Masters' Select International (MSILX) is a relatively inexpensive multimanager fund that recently reopened to new investors and that has prospered by combining an array of investment strategies.

• Oppenheimer International Growth (OIGAX) is an attractively priced offering that remains accessible to new investors and that has thrived by searching far for good growth opportunities.

Here are the details on each:

Masters' Select International

This fund's adviser recently added Northern Cross as the sixth subadviser in its lineup. The team from Northern Cross, which has had considerable success helping Hakan Castegren run Harbor International (HAINX), follows a flexible blue-chip strategy that pays significant attention to emerging-market opportunities.

Meanwhile, all of the other subadvisers have pronounced tastes and readily look beyond the overseas mainstream, and all of them are quite comfortable buying smaller-cap names, emerging-market stocks or both. As a result, this fund normally sports an exceptional portfolio that spans the market-cap spectrum as well as the world.

The fund also boasts outstanding longer-term returns, and it's up an impressive 29% this year and near the top of its category. The fact that its expense ratio is below the median for no-load foreign large-cap offerings is another plus.

Oppenheimer International Growth

George Evans, who has run this fund since it opened in early 1996 and is one of the longest-serving managers in the foreign large-growth category, follows a theme-oriented growth strategy.

He looks for companies with good three- to five-year growth prospects that fit into one of four investment themes -- mass affluence, new technology, restructuring and aging -- and he readily considers smaller-cap and emerging-market issues while doing so.

The result is one of the more distinctive and wide-ranging foreign portfolios around. In addition to a substantial amount of developed-market blue chips, the fund typically has a sizable position in emerging-market names, a healthy dose of midcap stocks and a significant stake in small-cap issues. Moreover, Evans has delivered superior gains over the trailing three-, five- and 10-year periods with this approach. And the fund's expense ratio is well below the median for front-loaded foreign large-cap offerings, which gives it a marked edge.

Some risks to consider

It's crucial to recognize that these funds' penchants for venturing outside the overseas mainstream court risk. And they have been more volatile than their peers over time.

It's also essential to understand that the big gains international funds of all stripes have posted in recent years are unsustainable and that these funds have enjoyed a tailwind during the current overseas rally due to their tastes for smaller-cap issues and emerging-market stocks, which have performed exceptionally well.

And finally, it's important to note that Masters' Select International is expected to make a distribution later this year.

This article was reported and written by William Samuel Rocco for Morningstar.