My International Funds: Q3 2005 YTD review
Have my international funds continued to outperform a broadly diversified international stock index? What, if anything, am I giving up in tax efficiency for being in actively managed vs. passively managed index funds?
For this post, I used Morningstar's "fund compare" tool to review YTD returns and tax efficiency for my two international funds. Vanguard's Total International Stock Index Fund (VGTSX) results have also been included -- serving as my benchmark.
My funds
Dodge & Cox International (DODFX) -- open to new investors
Fidelity Diversified International (FDIVX) -- closed to new investors
Why two international funds? I want to increase my allocation to international, and Fidelity is the only attractive alternative in my retirement accounts at work.
The benchmark
Vanguard's Total International Stock Index Fund (VGTSX) has been used as the benchmark, representing a broadly diversified index of the total international stock market.
Morningstar's results and my comments follow.
Return: My two funds compared with the benchmark
My comments
- My two funds, along with the benchmark, all performed well for the first nine months of the year:
- - D&C International = 11.62% YTD
- - Fidelity Diversified International = 11.45% YTD
- - The benchmark = 10.79% YTD
- For the first nine months of 2005, returns for both my international funds beat the benchmark.
- For 1-year returns, Dodge & Cox beat the benchmark; Fidelity lagged.
- For 3-year returns, Dodge & Cox beat the benchmark by a wide margin (34.45% vs. 26.88%); Fidelity narrowly beat the benchmark.
Tax cost ratio: My two funds compared with the benchmark
My comments
- For 3-year tax cost ratio**, both my funds outperformed the benchmark by a reasonable margin. While D&C does not have a 5 year history, Fidelity's 5-year tax cost ratio beat the benchmark by a small amount.
** Tax cost ratio represents the percentage-point reduction in an annualized return that results from income taxes. The calculation assumes investors pay the maximum federal rate on capital gains and ordinary income. A smaller number means LESS taxes.
Caveat
- Over long periods of time, index funds have outperformed approximately 90% of managed funds. Long term investors should give strong consideration to index funds. Learn more about actively vs. passively managed funds by reading the index fund debate.
- The benchmark in this comparison represents the total international stock index. Investors may also choose to hold more narrowly focused index funds -- of which, some have outperformed the broad index.
Related links
- My Balanced Fund: Q3 2005 YTD review
- My Bond Fund: Q3 2005 YTD review
- Don't miss this popular series: The index fund debate
- Learn how you may be able to lower costs when purchasing mutual funds
- See how my retirement plan withstands the test of time
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