Morningstar Inc. mutual fund analyst Bridget B. Hughes took contrarian investing to the nth degree when she recommended that investors look to the very bottom of the international equity fund heap.
On the company's website, Ms. Hughes recently reminded investors of the cyclical nature of emerging markets fund returns. Her report said, "Don't hold me to it, but if history repeats, these funds should post big gains next year ... we do think that some of this year's worst performers may be poised for a comeback, based on their competitive long-term records and solid managers."
Ms. Hughes' five international stock fund picks were:
* Dresdner RCM International Growth Equity Fund. "Of the five 2001 stinkers we continue to like, this one has been the stinkiest," Ms. Hughes wrote. The fund lost 33.2% year-to-date Dec. 3, but Ms. Hughes pointed to the fund's strong track record from late 1984 through 1999.
* Putnam International Voyager. "Putnam International Voyager is in uncharted territory," according to the report. With a -30.9% return year-to-date Dec. 3, the fund trailed 87% of peer funds. But in 1996 through 1999, the fund sat in or near the category's top decile, Ms. Hughes wrote. The fund's returns were good in November, showing potential for strong improvement, she added.
* Nicholas-Applegate International Core Growth. It lost 29.5% year-to-date Dec. 3, but the fund, which performs well in growth markets, likely will rebound in 2002, Ms. Hughes predicted.
* American Century International Growth. Down 28.6% year-to-date Dec. 3, this fund suffered in 2001 from a comparatively large allocation to telecom stocks, which hurt returns, Ms. Hughes noted. Under better market conditions, the fund tends to lead peers, earning Ms. Hughes' recommendation for 2002.
* Scudder International. The fund lost 28% year-to-date Dec. 3, disappointing since it is a blend fund designed to do well regardless of market conditions, Ms. Hughes said. But over the last decade, its returns were above the average for the category.