Most of the foreign stocks that you'll own, either directly or via mutual funds, will be from large companies domiciled in developed markets. To intensify your foreign position, consider these options.
Mid- and Small-Company Stocks
As in the United States, foreign mid- and small-company stocks theoretically have a growth edge over their larger counterparts, too.
You can find ideas by using an online tool such as Morningstar.com's free Fund Screener. Using that tool, simply use the following settings: Fund Group = International Stock; Morningstar Category = Foreign Large Blend; Morningstar Star Rating = 4, 5; Average Market Cap Less than or = $1 billion. You can change the inputs to narrow the search further.
The world's developing markets certainly hold promise. As deregulation, increasing communications, and free-market thinking grip emerging countries, their stock markets seem poised to benefit.
So far, emerging-markets investors have enjoyed some thrills. In 2003, funds in the emerging-markets category gained about 55% on average, and continued to post strong gains of 24%-37% on average in 2004-2007. But emerging-markets funds fell hard in 2008, dropping 54% on average, compared with a 37% drop in the S&P 500. These funds can also suffer in shorter time frames, posting double-digit losses during 11 rolling three-month periods in the past decade through October 2012, including six such periods when they plummeted 20% or more.
The jury's still out on whether emerging-markets stocks will deliver gains that live up to their promise. But they certainly qualify as aggressive investments.
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