Overseas medium risk

Mainstream European, American, and diversified Asian funds are medium risk, but at the top end of this scale compared to equivalent UK funds, due to additional currency risk.

M&G American is down 2.9% so far in 2008, but still outperforming its sector and the index (S&P 500 index). There are more aggressive US funds providing that you are optimistic about the outlook for the US - Neptune US Opportunities and Gartmore US Growth, which have underperformed in the last few months, but have “bounceability” in a recovering environment.

The Jupiter European Special Situations is unchanged since the beginning of the year, matching the index and doing better than the sector. Most of Europe does not suffer from the debt burden of the US/UK (and Ireland and Spain). Though Europe is not immune from global concerns, some fund managers are getting very excitable about the value they see, with Europe now as cheap as at any time since the 1990s (based on the current PE ratio). Of course the “e” bit of that equation, company earnings, is likely to be lower in the 12-24 months ahead, but this will likely just bring valuations into line with their historic average, and in the meantime dividend yields in Europe are exceptionally high.

If you have an income objective, the way to take advantage of the latter is the Resolution Argonaut European Income, yield 4.9%, with income growth on top, and the capital growth potential as the icing on the cake. The table at the bottom of the previous page highlights how important is the dividend, and growth in the dividend, whether your objective is income or growth.

The Asian funds have really driven portfolio performance in recent years, but are, not surprisingly, now under a bit of pressure. Our choice, First State Asian Pacific Leaders, is down 3.5% since the turn of the year, and still outperforming the sector by a few percent. Asia (excl. Japan) entered 2008 more expensively rated than other global sectors, for the first time since 2000. So, as nervousness spread around the globe, Asia, which is also a net importer of oil, was an obvious place to take profits, particularly in China and India. Valuations throughout Asia now appear much more reasonable, earnings growth prospects remain robust, and Asia is much less reliant on exports to the US, and much more self-generating, than it was in prior US downturns. First State have continued to focus on stocks exposed to domestic economies, and this has undoubtedly aided performance relative to its peers.

When we suggested that Japan was the possible surprise package for 2008, we didn’t expect a stampede to buy - and we weren’t disappointed. Nonetheless our selection, Schroder Tokyo, is up 3.7% since the beginning of the year, outperforming the sector and the index (Nikkei 225). The smaller company funds (from M&G and Axa Framlington) are down a touch over the same period, but remain an outstanding way to take advantage of a continuing Japanese recovery after a decade of torpor.

Co and Fund	Rating	Risk
First State Asian Property Secs	N/A	N/A	About	Buy
Jupiter European Special Sits	Silver	6.5	About	Buy
M&G American	Silver	6.4	About	Buy
Schroder Toyko	Bronze	6.1	About	Buy
First State Asian Pacific Leaders	Gold	7.5	About	Buy

Thank you for your prompt comprehensive reply - even if it was telling me the 'not so good news'. ...
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