Global Flexibility

Our equity fund portfolios are primarily invested in U.S. funds and ETFs. But our portfolios have the latitude to invest globally, and at times they have been invested quite heavily overseas.

With all the turmoil in Europe, and the recent poor performance of emerging markets, investing internationally may seem counterproductive. Most foreign market indexes posted big losses in 2011. If you invested in the EAFE, a broad international index, you ended 2011 down 12%. But if you never invest overseas, you may deny yourself tremendous potential for gains.

In fact, the cumulative return on the MSCI EAFE (Morgan Stanley Capital International’s Europe, Australasia, and Far East) Index has far outpaced that of the domestic S&P 500 Index over the last decade, 2002 through 2011 (up 57.78% vs. 32.89%). As the table below reveals, EAFE had higher returns in seven of the ten most recent calendar years. Indeed, historically, there have been several periods when it definitely paid to “go global,” and other periods when U.S. stocks were hard to beat.

Global Allocations
But how can we allocate our portfolios to take advantage of strength in global or domestic stocks when we can’t know in advance if foreign or domestic stocks will outperform in a given year?

One option is to use a flexible allocation like that of the FundX Upgrader Fund (FUNDX). FUNDX can invest 100% overseas or 100% domestically or anywhere in between, based on our performance-based ranking system.

The graph charts the monthly exposure of foreign funds and ETFs in the FundX Upgrader Fund over the past decade. The weighting in international funds has varied from zero to about 90% of the portfolio.

During periods when foreign stocks outperformed U.S. stocks, like in 2003-3007, the FUNDX portfolio tended to have higher exposure to overseas funds.

Past performance does not guarantee future results.

The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The MSCI EAFE Index (Morgan Stanley Capital International, Europe, AustralAsia and Far East) is an unmanaged index of over 1000 foreign common stock prices including the reinvestment of dvidends. It is widely recognized as a benchmark for measuring the performance of international value funds. You cannot invest directly in an index.

Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods.