Our International Growth portfolio is significantly invested in European-domiciled companies. But with the U.S. having outperformed Europe for so long, we’re increasingly being asked why advisors should consider this Fund for their clients.
Well, there are several reasons.
The first is the U.S. has outperformed for so long. Exhibit 1 shows the periods in which the S&P 500 Index has outperformed the MSCI EAFE Index and vice versa. The EAFE Index is primarily comprised of companies in the developed European markets.
As you can see, we are in the longest period of U.S. outperformance since the EAFE Index was established in December 1969. Given the nature of markets, another period of EAFE outperformance is inevitable.
Timing that change, however, is impossible. Attempting to time it is also expensive. Again, a picture is illustrative. Exhibit 2 highlights the return to investors in the EAFE Index over the past 47 years, depending on when they were invested in it.
As you can see, missing only the best six months – just 1% of the period – cost investors nearly 2% a year, or 124% over the whole period. Missing five of the 47 years -not even 11% of the period – caused investors to actually lose money.
Clearly, trying to time equity markets is self-defeating, which brings us to the third reason why an advisor might want to consider our International Growth Fund for their clients. The return discussed above is merely the EAFE Index return, not the return from our portfolio. Our portfolio has outperformed the index ever since we opened it over 20 years ago. Not in every time period, but consistently and significantly, as you can see in Exhibit 3.
Oppenheimer International Growth Fund—Class A Shares Average Annual Total Returns (as of 12/31/16)
|Without Sales Charge||-2.30%||7.31%||3.15%|
|With Sales Charge||-7.91%||6.04%||2.54%|
Gross Expense Ratio: 1.14%.
The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance and expense ratios may be lower or higher than the performance data quoted. For performance data current to the most recent month-end, visit oppenheimerfunds.com. Fund returns include changes in share price, reinvested distributions and a 5.75% maximum applicable sales charge except where “without sales charge” is indicated.
We believe in active management, so this does not surprise us. After all, the 930 companies and their weightings in the index are based entirely on market capitalization, i.e., their size, and nothing else. We, on the other hand, have a portfolio of 105 companies that we have chosen one by one after thoroughly examining their industries, management teams and practices, financial statements, track records and prospects. We seek companies that produce relatively high returns on the capital invested in them and possess the ability to sustain high rates of return for many years. As long as they do so, we continue to invest in them. In fact, we have owned a third of our companies for more than 10 years and over half of them for more than five.
Why invest in this portfolio, given that the U.S. market has outperformed for so long? Natural market action will reverse that. Trying to time that reversal is self-defeating, and therefore, investors need to maintain diversity in their asset allocation. Optimizing the benefits of that prudent allocation requires investing actively, not passively, with proven managers.
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The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Investments in securities of growth companies may be volatile. Mid-sized company stock is typically more volatile than that of larger company stock. It may take a substantial period of time to realize a gain on an investment in a mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.