Parris Kellermann, Bloomberg
Mutual-fund managers at BlackRock Inc., Goldman Sachs Group Inc. and Waddell & Reed Financial Inc. are investing everywhere except in the U.S.
Dennis Stattman is holding the lowest amount of U.S. and Canadian stocks in his $18.1 billion (Rs73,768 crore) BlackRock Global Allocation Fund since 1998. Katinka Domotorffy, manager of the $2.3 billion Goldman Sachs Growth Strategy Portfolio, prefers Germany, Switzerland and Austria to the U.S.
Ryan Caldwell, who helps oversee the $2.1 billion Waddell Advisors Asset Strategy Fund, has 25% of his holdings in U.S. equities, half that of foreign companies. Investors are increasingly concerned about a housing recession in the U.S., the falling dollar and deteriorating consumer confidence.
“The gains in the U.S. were fun while they lasted, but we feel like growth lies outside the country,” the 55-year-old Stattman said from his office at BlackRock in New York.
The BlackRock fund rose at an average annual pace of 12.4% in the past five years, compared with the 8% return of the U.S. benchmark Standard & Poor’s 500 Index. The Waddell fund climbed at an annual pace of 14.8%.
Goldman’s fund advanced at an average yearly rate of 13.2% in the same period. It’s one of just five U.S.-based mutual funds that have outperformed the S&P 500 for eight straight years, according to data compiled by Chicago-based Morningstar Inc.
The funds are the top three performers among nine in the global asset allocation category tracked by Bloomberg. The BlackRock fund has appreciated 5.1% this year, the Goldman fund rose 6.1% and the Waddell fund returned 6.6%, beating the 4.9% advance of the S&P 500.
The fund managers increased their holdings of international stocks as U.S. shares underperformed. Non-U.S. stocks, measured by the Morgan Stanley Capital International index of developed countries in Europe and Asia, climbed at an average annual pace of 25% since the start of 2003, beating the S&P 500’s 14% gain.
Performance was even better in emerging economies, led by Brazil and Russia, which are benefiting from a boom in commodities, and India and China, where people are spending more on cars, telephones and travel. The MSCI index of emerging economies rose at a yearly rate of 35% since the beginning of 2003.
Investing outside the U.S. “can carry additional risk,” said Michael Herbst, an analyst at Morningstar. “These managers can go anywhere, and if they get their global outlook wrong, the fund takes a hit.”
Buying in India
Emerging-markets stocks slumped 10% in five days beginning 27 February on concern world economic growth would slow, pulling down indexes from Russia to the Philippines. The S&P 500 fell 5.2% in the same period.
The average global asset-allocation fund has 43% of its money in the U.S., compared with 49% a year ago and 63% five years ago, according to Morningstar. Asia accounts for 23%, twice as much as five years ago, and Europe represents 29%, up from 23%.
BlackRock’s Stattman has 21% of his fund’s assets in U.S. and Canadian equities and 34% in international stocks. About 2.6% is in Indian stocks, which is more than the combined holding in Switzerland, the Netherlands, Spain and Ireland. The fund’s third-largest holding at the end of 2006 was Mumbai-based Reliance Industries Ltd, India’s biggest chemical maker.
Stattman, a former pension officer at the World Bank, said consumer spending will bolster the Indian economy as incomes rise in the nation of 1.1 billion people. India’s per-capita income will quadruple from today’s $586 by 2020, according to estimates by Goldman analysts.
Goldman’s Domotorffy, who’s responsible for implementing strategy for the New York-based firm’s $6.3 billion in asset- allocation funds, soured on U.S. stocks at the end of last year as the dollar fell. Fifty-nine of 71 currencies climbed against the dollar in the past six months, according to data compiled by Bloomberg.
International stocks excluding real estate account for more than 40% of the Goldman Sachs Growth Strategy Portfolio, up from 32% at the end of last year, according to fund documents. Domotorffy said she is “overweight” in Germany and Switzerland, whose benchmark indexes returned 15% and 10% this year, respectively. She has about 38% of assets in U.S. stocks.
“The U.S. equity market looks unattractive, looks more expensive,” said Domotorffy, 31. “International is a better deal” when considering economic indicators, she said.
Half of Waddell Asset Strategy is invested in international stocks, up from 32% a year ago, said Caldwell, who manages the fund with Michael Avery and Dan Vrabac at Overland Park, Kansas-based money manager Waddell & Reed.
Caldwell, 32, said accelerating economic growth and corporate profits make emerging markets a better investment, especially in China, India, Russia, Southeast Asia and Eastern Europe. The managers are bullish on technology, health care, financial services and alternative energy. The Chicago Mercantile Exchange is the sole U.S. company in the fund’s top five holdings, according to Waddell’s most recent report.