Three Promising Foreign Funds to Spice Up Your Portfolio

Investors can certainly be forgiven if they don't closely monitor all the new funds that are launched each year. New traditional mutual funds are still being rolled out on a regular basis, and new exchanged-traded funds are being launched at a very rapid rate, so the overall pace of fund openings is pretty overwhelming these days. Moreover, many of the new funds that open simply don't have enough positive attributes to be appealing or have major flaws that make them downright unattractive.

However, there normally are a few good options among the scores of new funds that are launched each year. In fact, we identified a handful of young domestic large-cap, foreign large-cap, allocation, and bond funds with real potential in recent columns, and now we'll highlight a trio of young supplemental international funds with considerable promise. Causeway Emerging Markets Investors, Matthews Asia Pacific Equity Income, and Thornburg International Growth have fine family pedigrees and other encouraging characteristics that make them worth a look from investors seeking complements to their core foreign holdings. Here are the details on each.

Causeway Emerging Markets Investors (NASDAQ: - )
This diversified emerging-markets fund, which opened in March 2007, boasts strong family credentials, seasoned managers, and a sound strategy. Causeway Capital Management is a first-rate international specialist that's fundholder friendly and quite adept at attracting and retaining investment talent.

Arjun Jayaraman, who was hired in January 2006 to build out Causeway's emerging-markets capabilities and serves as the head of quantitative research as well as a comanager of this fund, had seven years of investment experience before joining the firm, including stints running international portfolios that included significant amounts of emerging-markets securities. MacDuff Kuhnert, this fund's other comanager, has been a quantitative specialist at Causeway since the firm opened in mid-2001 and worked with the founders of the firm in a similar capacity for several years prior to that at another fund company. And Jayaraman and Kuhnert continue to oversee the quantitative screens and risk-management used on the firm's flagship fund, Causeway International Value (NASDAQ: - ), which is a Fund Analyst Pick and known for its effective risk management as well as its overall appeal.

Not surprisingly, given their expertise and Causeway's overall reserve, Jayaraman and MacDuff are using a quantitative strategy that incorporates value as well as growth criteria and that pays ample attention to risk management. Such a moderate risk-conscious approach makes a lot of sense given the many perils associated with investing in developing markets, and while shorter-term outperformance is never very meaningful, it is worth noting that the fund held up much better than most its peers as emerging markets struggled during the month ending August 22. In short, we think investors seeking a relatively conservative emerging-markets play should keep their eyes on this fund.

Matthews Asia Pacific Equity Income (NASDAQ: - )
This diversified Pacific/Asia fund's appeal begins, but certainly doesn't end, with its relatively conservative strategy. This fund focuses on reasonably priced companies that are increasing their dividends in a sustainable manner, so the fund has only moderate valuation risk and pays out an income stream that should bolster, and smooth out, its total returns. While many of its peers concentrate on a handful of markets and favor Japan, the fund invests broadly across the region--it had far less than half the category norm of 48% in Japan as of July 31--which tempers its country risk and means that it can work well as a complement to many core foreign holdings. (Most foreign-large-cap funds have sizable Japan stakes.)

Further, Matthews International Capital Management is a topnotch Asia specialist that has had considerable success with a variety of regional and single-country offerings, including Analyst Pick Matthews Pacific Tiger (NASDAQ: - ), Matthews Asian Growth & Income (NASDAQ: - ), and Matthews China (NASDAQ: - ). This fund's lead manager, Andrew Foster, is a veteran of the firm, who also serves as its director of research and lead manager of Matthews India (NASDAQ: - ). And in addition to comanager Jesper Madsen and research associate Yu Zhang, who provide direct support on this fund, Foster also has all the other Asia experts at Matthews to draw on as needed.

There are other grounds for optimism as well. Foster and his team have delivered relatively strong returns since the fund opened in late 2006. And Matthews is fundholder-friendly firm that has capped this still-small fund's expense ratio at a quite reasonable 1.50% and done a good job of lowering costs on its other funds as their asset bases have grown. All told, we believe investors seeking to spice up their portfolio with some pan-Asia exposure should monitor this fund closely.

Thornburg International Growth (NASDAQ: - )
This foreign small/mid-growth fund, which opened in February 2007, has several attractive features. For starters, it's clear that its managers, Alex Motola and Brian Summers, have a lot of talent. Thornburg Core Growth (NASDAQ: - )--which Motola manages with help from Summers--has crushed its average mid-growth peer since opening at the end of 2000 by posting generally respectable results during downturns and generally terrific gains during rallies.

What's more, the strategy Motola and Summers are using at this fund is quite similar to the one they follow on Thornburg Core Growth. Indeed, they're focusing on the same three types of growth stocks here as they do there, namely growth industry leaders (fast-growing firms with proprietary advantages and in rapidly expanding industries), consistent growers (those with steady earnings and revenue growth), and emerging-growth companies (firms establishing leading positions in promising areas). They've also exported their practice of pursuing the best opportunities without concern about benchmark and peer-group weightings, so distinctive country and sector stakes will be the norm here. And they run fairly compact portfolios at both funds, though this one will tend to hold somewhat more stocks than that one.

There are other factors in this fund's favor. Motola and Summers regularly devote a significant portion of Thornburg Core Growth's assets to foreign stocks, and they've picked a number of overseas winners over the years, so they already have had some experience and success investing abroad. Thornburg International Value (NASDAQ: - )--which has very different stock-selection criteria than this fund but also invests in three types of names and runs a distinctive and compact portfolio--has one of the better long-term records in the foreign large-blend category. And Thornburg Investment Management treats its fundholders pretty well overall. Thus, we think this young fund is well worth consideration from investors who are seeking a foreign small/mid-growth offering and who can handle the risks that come with its commitment to growth, willingness to go its own way, and issue concentration.

William Samuel Rocco has a position in the following securities mentioned above: MINDX MCHFX