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4 Best-Rated Global Mutual Funds For Portfolio Diversification

Global mutual funds are excellent options for investors looking to widen exposure across countries. Central banks of major regions including the Eurozone, China and Japan opted for economic stimulus measures such as rate cuts and monetary easing to boost their respective economies. In this environment, these countries thus provide lucrative investment propositions. Meanwhile, the recent lift-off by the Fed indicated that the U.S. economy is on track to stable growth in the near term. Thus a portfolio having exposure to both domestic and foreign securities will likely help in reducing risk and enhancing returns. However, investors need to be careful while investing in these funds, given the heightened uncertainty. Below we share with you four top-rated global mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all global mutual funds, investors can click here to see the complete list of global funds . The Fidelity Worldwide Fund (MUTF: FWWFX ) seeks capital appreciation. FWWFX primarily focuses on acquiring common stocks issued throughout the globe across a wide range of regions. FWWFX considers factors including economic conditions and financial strength before investing in a company. The Fidelity Worldwide fund returned 4.6% over the past three months. As of October 2015, FWWFX held 321 issues, with 2.93% of its assets invested in Alphabet Inc Class A. The American Funds New Perspective Fund (MUTF: ANWPX ) invests in securities of companies throughout the globe in order to take advantage of changes in factors including international trade patterns and economic relationships. ANWPX primarily focuses on acquiring common stocks of companies that have impressive growth prospects. ANWPX may also invest in companies that are expected to pay out dividend in the future to generate income. The American Funds New Perspective A fund returned 6.9% over the past three-month period. ANWPX has an expense ratio of 0.75% compared with the category average of 1.28%. The Polaris Global Value Fund (MUTF: PGVFX ) seeks growth of capital. PGVFX utilizes a value-oriented approach to invest in common stocks of both U.S. and non-U.S. companies, which also include firms from emerging nations. PGVFX defines emerging or developing markets as those which are not listed in the MSCI World Index. The Polaris Global Value fund returned 5.4% over the past three months. Bernard Horn, Jr. is one of the fund managers of PGVFX since 1998. The Harding Loevner Global Equity Portfolio (MUTF: HLMGX ) invests the lion’s share of its assets in securities including common and preferred stocks of companies located in both U.S. and foreign lands. HLMGX allocates its assets to a minimum of 15 countries, including emerging nations. HLMGX may also invest in Depositary Receipts. The Harding Loevner Global Equity Advisor fund returned 7% over the past three-month period. HLMGX has an expense ratio of 1.20% compared with the category average of 1.28%. Link to the original post on Zacks.com

Integrating Water Risk Analysis Into Portfolio Management

By Monika Freyman, CFA My previous article, ” Liquidity Risks of the H2O Variety ,” explored growing investor awareness about water risks within their portfolios and how that awareness plays into their investment decision making. Here, I will examine some of the increasingly sophisticated approaches that investors can take to integrate water risks into portfolio management. My recent survey of 35 institutional investors’ water integration practices found that while many investors think their methods, tools, and databases need to improve and evolve, they also found it worthwhile to integrate water into their research processes. And no wonder. As population pressures create competition for water, global groundwater supplies are declining and climate variability is increasing – leading to longer droughts and more intense flood events. All these factors pose risks that are hard to ignore. Water risk analysis happens at different stages of investment decision making, from the initial asset allocation strategies, to portfolio level analysis, through to the buy/sell decision. For example, one pension fund brought together portfolio managers from different asset classes to study how different markets, investment instruments, and geographic regions are exposed to the global water crisis. A few investors were also consistently analyzing their portfolio’s water risk exposure or its water footprint. Although far from a perfect approach – often missing location specific data or wastewater production metrics – portfolio water footprinting can be helpful in flagging companies and sectors with high water risk exposure relative to a benchmark and highlighting where further analysis is warranted. Various forms of portfolio analysis and attribution software allow managers to run water use metrics versus an index. For an example of water footprinting, see this South African study . At the individual security level, investors identified three critical research steps to obtain a comprehensive picture of water risk exposure: Understand Corporate Water Dependency: This varies by sector and, of course, company, with some industries relying heavily on access to abundant freshwater suppliers directly or in their supply chain. Corporate water dependency is not always easy to assess, but some companies are making the task easier by reporting their water use and wastewater trend data more consistently on their websites, in their annual reports, SEC filings or to data aggregating organizations, such as CDP Worldwide’s Water Program . Combine Water Dependency Data with an Assessment of Water Security: This gives a more comprehensive picture of corporate water risk exposure. A company may have high water needs but have their operations located in relatively water abundant regions. Another company, however, may be operating in regions of high water competition and drought. Such assessments are not simple to perform, but evolving tools, such as World Resources Institute (WRI)’s Aqueduct corporate water risks map , the World Wildlife Fund (WWF)’s Water Risk Filter , and other efforts are seeking to make the task easier. Get a Sense of Corporate Water Risk Awareness and Response: This step is essential because a company may have high water needs and poor water security, but mitigate the risks very effectively by elevating water issues to strategic decision making and putting water management and reporting systems in place. Tools such as The Ceres Aqua Gauge can be used to assess how well companies are managing their water and their exposure to water risks. For a more comprehensive list of third-party water tools and analytics, An Investor Handbook for Water Risk Integration is a helpful resource. Once water risk analysis is conducted on a corporation or security, our research found that fund managers use this information in a variety of ways, from avoiding high water risk industries or companies, to influencing internally created company environment, social, and governance (ESG) scores, to clarifying corporate engagement priorities. Several managers use their corporate water risk assessments to influence or modify financial projections or their weighted average cost of capital assumptions. For example, one fund manager studying companies in Brazil conducted scenario analysis modeling regarding how much the market cap of companies would be impacted if they had to absorb more of the costs of treating their wastewater discharges, especially as drought intensified and communities and regulators were becoming less tolerant of water use and pollution. Once impacts to market cap were assessed and shared with the management of those companies, engagement on those issues was far more pointed and productive. Other managers were trying to get a deeper understanding of the probability of large financial losses due to strategic risks related to water, such as not being able to grow revenue, access new markets, or develop new facilities. No matter what methodology one chooses to deepen water risk analysis practices, the most critical things to keep in mind are that water risks can lead to unlimited financial impact and loss. If a company loses access to water, a community kicks them out of a region due to water concerns, or permission to discharge wastewater is denied, the financial and strategic implications can be immense. For example, Newmont Mining (NYSE: NEM ) has postponed a $5 billion project in Peru due to community concerns over its water practices. In addition, it is important to look at sector specific issues, as water risks related to mining are obviously very different to those in semi-conductor manufacturing and so on. An Investor Handbook for Water Risk Integration includes a sector-specific cheat sheet on these issues. And most important of all: No matter how incomplete your water risk analysis starts off, it will likely provide a better understanding of sector or company risks (and opportunities) – which ultimately should add predictive power to your existing research processes. The goal is not to be perfect in your methods from the outset, but to begin including water risk analysis into your portfolio management practices. Disclaimer: Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Our Investing Biases Are Particularly Dangerous Because They Are Time-Based Rather Than Phenomenon-Based

By Rob Bennett I read an article this week that explored the differences between how we have responded as a society to the pushes for limits on smoking and on guns. The push for limits on smoking has been highly successful. The push for limits on guns has not been terribly successful. Why? The article argued that the difference is that smoking is not an ideological or cultural issue; neither conservatives nor liberals see efforts to limit smoking as an attack on their world view. It’s different with guns. Most cities are heavily liberal and most rural areas are heavily conservative. As a result, there are strong ideological and cultural differences between those who own guns and those who do not. Those who have never been around guns have a hard time understanding why anyone would feel a need to own one. But those who have been around guns all their lives cannot understand why those favoring limits on ownership are so troubled by guns. So efforts to change the law in this area produce intense conflicts; the harder one side pushes for limits, the harder the other side opposes those limits and gridlock results. “Bias” is not one thing. There are many varieties of biases, some more problematic than others. In fact, an argument can be made that some biases are good. As a general rule, it is a bad thing to be biased because to possess a bias is to respond unthinkingly to a phenomenon. But acting on the basis of a bias speeds up one’s reaction time and that is not such a bad thing in some cases. I have a strong bias against disco. I have probably missed out on some disco songs from which I would have derived a pleasurable listening experience. But there aren’t many disco songs that fall into that category. And my bias helped me avoid a lot of painful listening experiences too. The biases that many of us hold about investing issues are extremely damaging, in my view. Most biases are phenomenon-based. We favor certain types of food over others. Or we favor certain ways of thinking about issues over others. Or we favor certain ways of doing things over others. These biases can hold us back. But the good thing about phenomenon-based biases is that we can limit the power of the bias by deliberately exposing ourselves to the opposite sort of phenomenon from time to time to check whether the bias is supported by the realities. Liberals are biased against conservative ideas and conservatives are biased against liberal ideas. Is that really such a bad thing? If we reconsidered our philosophical orientation each time a new issue was presented to us for our assessment, it would take much longer for us to figure out where we stand on issues. The reality is that once a person has thought about a few issues hard enough to know where his bias lies, he can save time when assessing new issues by jumping to a quick conclusion that his position will be ideologically consistent with his earlier positions. Being biased is a time-saver. But there are dangers, of course. There are always those few issues regarding which a liberal adopts the conservative take and those few issues regarding which a conservative adopts the liberal take. Those exceptions can achieve great significance over time. If you follow the story of how a liberal becomes a conservative over a number of years or of how a conservative becomes a liberal over a number of years, you will see that it is usually one important exception to a general bias that starts the ball rolling in a new direction. I often seek out views different than my own just to shake up my preconceptions a bit. It’s very very hard to do that in the investing realm. The most important investing biases are time-based rather than phenomenon-based. That means that for long periods of time certain ideas are forgotten by almost the entire population. To tap into the other side of the story, the investor would have to study historical data from a time period many years removed from the current time period. Who does that? Shiller showed that valuations affect long-term returns. What he really was doing when he did that was showing that the stock market is not efficient, that mis-pricing on either the high or low side is a significant reality rather than the illusion that Buy-and-Holders believe it to be. Even during the most out-of-control bull market, there are a small number of people questioning whether the insane prices achieved are real and lasting. But the percentage of the population holding that view can be very small indeed. The percentage of the population that is conservative rather than liberal doesn’t vary dramatically from time to time. The percentage of the population that believes that stocks are the perfect investment choice is dramatically higher when prices are high than it is when prices are low. For a good number of years following the great crash of 1929, investors didn’t expect to see any capital appreciation at all on their stocks. The conventional wisdom of the time was that stocks were worth buying only for their dividends; those that didn’t pay high dividends were not worth owning. In the late 1990s, dividends fell to tiny levels. The very thing that made stocks dangerous (their high price) changed the conventional wisdom on stock ownership to reflect a bias that stocks are always worth owning. Stocks for the Long Run was a popular book in the 1990s. It would not have sold many copies in the 1930s. The book reports on data, facts, objective stuff. The message of the data should not change from times like the 1930s to times like the 1990s. But the ways in which we arrange the data and interpret the data changes when we go from bull markets to bear markets. People will be looking at the same data that was employed in Stocks for the Long Run to sell stocks to make the case against stocks when we are on the other side of the next stock crash. Our stock biases hurt us. But they are hard to see through because just about everyone is on one side of the table for a long stretch of time and then just about everyone is on the other side of the table for the next long stretch of time. Bull markets turn us all into bulls and bear markets turn us all into bears. Investing biases come to be so widely shared for long stretches of time that it is hard for any of us to keep their other point of view even remotely in mind. Disclosure: None