“International Equity Funds Bounced in Second Quarter”
Interesting M* article. I’m a happy owner of VWILX, now my biggest equity fund holding.
One excerpt from the article underscores an observation I have made a number of times before: funds with a permanent cash stake too often are losers. They say that the “dry powder” gives the managers flexibility to pounce on opportunities, but the reality is that it’s usually hogwash. For some reason these funds fall as much as fully-invested funds during market swoons, they recover more slowly, the managers usually fail to invest any of the cash, and the cash stake just inflates the effective expense ratio.
“IVA International (IVIOX) posted a weak performance in the second quarter, rising just 9.9% relative to a 15.5% gain for its average foreign large-blend peer. The fund’s variable cash stake often serves as a buffer in down markets, while acting as a drag in up markets. This year was a bit of an oddity, though. The fund’s cash stake didn’t prevent it from falling in line with its benchmark during the calamitous first quarter as its consumer and financials holdings lagged. The fund’s picks fared better in the second quarter, but the cash allocation then had its usual effect of damping returns.”