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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 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 quite well. The problem, however, is that many of these funds place a significant amount of their portfolios in U.S. stocks. This can make their portfolios very close in nature to growth funds that are allowed to invest in foreign markets. 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 and 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 December 31, 2011, the group had an annualized gain of 4.3%, while the MSCI WORLD Index reported an annualized gain of 2.7%. Over the trailing five and three year periods, the group had a loss of 1.5% and a gain of 12.9%, respectively, while the Index reported a loss of 3.8 and a gain of 8.7%, respectively. During the one-year period ended December 31, 2011, the Global Equity objective group reported a loss of -7.4%, compared to a loss of 7.6% for the MSCI WORLD Index. The group has an average Risk Rank of 3, indicating that funds might appeal to the typical investor. 

One fund with a relatively high one year return through 2011 is Virtus Global Infrastructure (PGUAX). The fund seeks both capital appreciation and current income.

The fund invests in global infrastructure companies involved in the energy, utility, transportation, and communications industries. Infrastructure companies are believed by the subadviser (Duff & Phelps Investment Management Co.) to exhibit attractive risk/return characteristics and provide above average safety.

The fund invests at least 25% of its assets in securities of U.S. issuers. Although it concentrates investments in infrastructure companies, it may allocate up to 20% of its assets to non-infrastructure related investments, including stocks, debt obligations, money market securities and money market mutual funds, as well as certain derivative instruments. When investing in debt obligations, the fund will invest primarily in investment grade debt obligations, although it may buy high-yield, high-risk fixed income securities (junk bonds) as well.

Another fund with a relatively good year-to-date return through December 31, 2011 is Huntington Rotating Markets A (HRIAX). The Fund seeks capital appreciation while attempting to keep volatility in check.

The fund normally invests at least 65% of its total asset in companies organized in the U.S. and included in the S&P 500 Index or the S&P 100 Index. As of April 12, 2011, the market capitalization range for the companies included in the S&P 500 Index was approximately $1.6 billion to $414 billion, with a median of $11.8 billion, while the market capitalization range for the companies included in the S&P 100 Index was approximately $11 billion to $414 billion, with a median of $50 billion.

Among the many factors that the portfolio manager (Huntington Asset Advisors, Inc.) considers in weighting assets toward the S&P 500 or S&P 100 are desirable diversification, volatility of options on stocks of the respective indices, ease of exercising options, and the availability of put options on those indices which are necessary to effectively hedge the fund’s portfolio against potential market declines. The portfolio manager has discretion to change the composition of the fund’s portfolio without prior notice to align with one Index in lieu of the other.

The fund will also purchase put options on the Indices and write call options on individual securities held in its portfolio. Put options on the applicable Index are limited to less than 10% (at cost) of the fund’s total assets. The put options are used as a hedge in case the value of the fund’s common stock positions decline. Management may also write covered call options on common stocks held in the fund’s portfolio to generate a portion of the income necessary to purchase put options on the applicable Index. 

The fund actively trades its portfolio securities in an attempt to achieve its investment objective. The advisor may in the future consider converting the fund’s structure to an exchange-traded fund (“ETF”). Upon such conversion, the applicable investment strategies may be adjusted, as well as the fees and expense structure. Prior to any conversion, shareholders will receive appropriate notice, as may be required under applicable federal securities laws and regulations. 

A third fund with very good return through 2011 is MainStay Epoch Global Equity Yield A (PGROX). The fund seeks to provide a high level of income. Capital appreciation is a secondary investment objective.

The fund generally invests in a diversified portfolio consisting of equity securities of companies located throughout the world, including the U.S., that have a history of attractive dividend yields and positive growth in free cash flow.

The fund may invest up to 20% of its net assets in securities issued by companies located in emerging markets when the fund's subadvisor, Epoch Investment Partners, Inc., believes they represent attractive investment opportunities. Management is permitted to invest up to 20% of its net assets in investment grade fixed income securities in U.S. and international markets.

Around 40% of the company’s assets are usually invested in the securities of foreign companies. The fund will normally invest in companies located in at least three countries outside of the U.S. The fund's goal is to produce an efficient portfolio on a risk/return basis with a dividend yield that exceeds the dividend yield of the Morgan Stanley Capital International ("MSCI") World Index.

Free cash flow generation is a key fundamental the fund managers use when making purchasea. The amount of capital being returned to shareowners is also considered. Indeed, the Subadvisor seeks to identify companies with a consistent, straightforward ability to both generate free cash flow and to properly allocate it among internal reinvestment opportunities, acquisitions, dividends, share repurchases and/or debt reduction.

The security selection process focuses on free-cash-flow analytics as opposed to traditional accounting-based metrics. The subadvisor seeks to find and invest in companies that meet its definition of quality - companies that are free cash flow positive or becoming free cash flow positive, that are debt free or deleveraging, and that are led by strong management.


In the table below, we have listed 10 top-performing funds through December 31, 2011 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

DWS RREEF Global Infrastructure A

TOLLX

15.71

1.77

8.13

3.80

 

The Vice Fund

VICEX

10.81

1.09

12.98

  

-3.08

0.28

  

Virtus Global infrastructure A

PGUAX

10.16

2.16

9.80

0.81

3.06

ING Morgan Stanley Global Franchise Adv

IGFAX

8.74

0.54

4.36

-2.91

 

Dreyfus Worldwide Growth A

PGROX

6.76

1.11

10.58

-3.34

2.06

Huntington Rotating Markets A

HRIAX

6.26

1.46

11.97

-1.17

-1.09

J Hancock3 Global Shareholder Yield A

JGYAX

5.53

0.45

7.70

-3.34

 

Mainstay Epoch Global Equity Yield A

EPSPX

5.50

0.52

7.67

-3.35

1.21

Virtus Global Opportunities A

NWWOX

5.37

0.06

8.03

-0.87

-2.43

Tweedy Brown Worldwide Hi Div Yield Value

TBHDX

4.04

1.52

6.17

-4.55

  

Global Equity Objective Group

  

-7.39

-1.48

6.74

-11.69

-1.47