International Funds -- Dummy Managers

The one thing we have all heard these last years has been the importance of investing in international markets and the value of doing this through international mutual funds -- adding diversity and banking on experienced managers. Emerging markets have been especially touted as the new frontier and the hot markets. As a result, choices in these sectors among mutual funds have increased dramatically. So have fund managers and so has the ignorance quotient of those who manager these funds.

Yesterday, The Wall Street Journal reported, to their surprise, that US funds held up far better these last months than their foreign counterparts. The reporter found this worthy of note, but spent much of the rest of the article arguing that now was a good time to get into international funds.

What all these hucksters of international funds fail to realize is that such funds are only as good as their managers. And most managers of these funds have never spent a moment abroad and certainly have not lived abroad in the areas in which they are investing. Americans seem to believe that we can figure it out here – just studying the data and buying in familiar sectors. That is just not the case. If you do not understand the underlying culture of the country you are investing in, you are setting yourself up for huge surprises. A recent Fast Money segment on China was, in fact, laughable as each of the gurus spoke with authority about individual stocks and Chinese ETFs. But, if you knew anything about China, it was abundantly clear that they did not.

So, investing in international funds is a dangerous proposition. It really pays to learn a lot about the managers and to seek out the one or two who are truly familiar with the particular countries and regions. Putting your money in the hands of dummies is just plain stupid.