International and global stock funds that have had above-average performance in the past tend to continue their run, unlike domestic stock funds, where the correlation between past and current results is "practically non-existent," according to research from Widmann, Siff & Co., Byrn Mawr, Pa.
The firm examined all 35 international/global stock funds that had at least 10 years of history as of Dec. 31, using Morningstar Inc. performance data. It combined the annual results of the above-average performing funds for different periods and compared those to results from subsequent periods. For example, the best fund over a three-year period was compared to the other funds at the end of the next three years. Frequently, the fund still had above-average results relative to its peers.
The 12 funds that performed better than average in at least six of the past 10 years were: EuroPacific Growth; Fidelity Overseas; Merrill Lynch Pacific A; New Perspective; Oppenheimer Global A; PilotKlein International Equity; Putnam Global Growth A; Scudder International; T. Rowe Price International Stock; Templeton Foreign; Templeton Growth I; and Vanguard International Growth.
Clearly experience counts. The average tenure of the portfolio managers for the 12 top funds is 9.4 years, compared with 3.5 years for the portfolio managers in the remaining 23 funds in the study's universe.
Other common threads of the top performers: substantially lower operating expenses, 1.05% vs. 1.61%, and lower turnover rates, 32% vs. 83%. Also, the better performers did not extensively hedge currency fluctuations.
Most of the top portfolios blend growth and value stocks. None had a pure growth approach to investing.
"We speculate that the cultures in other countries prompt the local investors to stick with the tried and true value stocks. Start up situations and unseasoned companies are viewed with more skepticism than in our more aggressive capitalistic society," the report said.
The firm expects the correlation of past performance to current results to weaken as newer managers gain expertise. Since 1985, an additional 582 international stock funds have been launched, the report said.