Daily Money Tip: Investing in foreign markets can pay off

Posted: February 27, 2014

Money managers stayed away from investing in Europe and other foreign markets after the financial crises there in 2008 and 2011. But at least one changed his mind - and it's working in his favor.

Steven Krawick, president and chief investment officer of West Chester Capital Advisors, a unit of AmeriServe (symbol: ASRV) in the fall of 2013 began adding European and Japanese equities to client portfolios. (With variations, typically his clients hold 60 percent stocks and 40 percent bonds.)

"The rationale came down to valuation," he says in an interview from West Chester Capital's Johnstown, Pa., offices. "On a price-to-earnings basis, the European markets traded at about a 55 percent discount to the U.S. markets," a bargain he couldn't pass up.

The portfolio manager of $890 million in assets has been buying iShares MSCI EAFE exchange-traded fund (EFA), American EuroPacific Growth Fund (AEGFX), WisdomTree Japan Hedged Equity Fund (DJX), and American SMALLCAP World Fund (SCWFX). Another fund he likes, for investing in international markets, is Oakmark International Fund (OAKIX), with exposure in developed countries (Japan, Canada, and the United Kingdom) and in emerging countries (Mexico, Brazil, and Korea).

Be aware that some international funds have heftier management fees. For example, Oakmark International's is 0.98 percent annually. Registered investment advisers often get a discount because they buy the "institutional" class of the fund's shares, rather than the retail fund class.

In fixed income, Krawick sees the 10-year Treasury bond yielding more than 3 percent by the end of 2014, up from 2.70 percent Tuesday. "We're more defensive in bonds. Through the last half of 2013 we've been investing in more floating-rate bond funds," such as Oppenheimer Senior Floating Rate Fund (OOSIX) and the Eaton Vance Floating-Rate Advantaged Fund (EIFAX), along with core bond funds such as DoubleLine Total Return Bond Fund (DBLTX), Loomis Sayles Bond Fund (LSBDX), the PIMCO Income Fund (PIMIX), and the Federated Institutional High-Yield Bond Fund (FIHBX).

Krawick has been selling out of preferred stocks he bought back in 2009 - in particular, shares in banks and financials such as JPMorgan Chase (JPM), Goldman Sachs (GS), PNC Financial Services Group (PNC), and Prudential Financial (PRU). "They did well for us after the crisis, so we've been exiting those. I'm probably holding about one-tenth the amount we did four or five years ago."



comments powered by Disqus