There's a large range of volatility among these funds—our rankings show some that have been 30% less volatile than the S&P 500, while others have been as much as 50% more volatile. Volatility is dampened in this group by the usual tendency of the manager to spread money across a number of countries and regions so an unexpected event in one particular country doesn't ding the overall fund too much. As the table shows, there hasn't been a notable difference in volatility in recent years between the global and foreign funds in our rankings. The primary difference is the presence or absence of U.S. stocks in these funds.

●  Regional funds are the wild child of the international scene. These funds may focus on one specific country or a particular region. We also lump into this group the "emerging market" funds that focus exclusively on the smaller, more volatile markets. If international investing is like going to an amusement park, these regional funds are the big roller coasters, capable of wild thrills and breathtaking drops. This shouldn't be a big surprise, as they focus on smaller, less stable overseas markets, and typically have relatively little diversification. It's easy to see how all the stocks in a hypothetical Taiwan fund would plummet in unison if China started preparations for an invasion. Money can be made and lost in a hurry with these funds, making them speculative tools that we generally don't recommend for most investors.

Given that the earlier case for international investing was largely built on the appeal of the Asian markets (excepting Japan), some might reasonably conclude that a Far East regional fund would be the best way to play this expected trend. But Sound Mind Investing readers have a secret weapon in their foreign investing toolbelt. Okay, it's not really secret—it's the momentum system our Upgrading strategy is built upon. The beauty of Upgrading applied to international funds is that it releases us from having to predict which areas will be hot and when. We pour all the foreign funds into the top of our momentum funnel/filter, and let the upgrading process tell us which combination of countries, company sizes, and investing styles is working best at any particular moment.

© Sound Mind Investing

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