For the past three years, through August, Morningstar’s world stock category of mutual funds returned nearly 14% a year while the funds in the international equities category had annualized returns around 10%. The reason for the wide disparity? World stock funds (also called global stock funds) include some U.S. stocks, which returned well over 17% a year in that period, far better than funds holding only foreign stocks. The superior results from the U.S. positions pushed up returns for global funds.
Longer term, the annualized 10-year returns for world stock funds, domestic equity funds, and international equity funds are all within 80 basis points. Just as U.S. stocks have outperformed recently, there have been and probably will be times when foreign equities excel. If clients invest through funds, is there any reason to include global stock funds? Why not just use domestic funds and foreign funds in their asset allocation?
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