Hi folks,
I came across this site while doing due diligence on some funds I'm considering:
I was excited when I saw the coverage here described as "the thousands of funds off Morningstar’s radar” and saw that you have fund profiles because I thought maybe I could find some discussion of the merits and flaws of those funds as well as comparables to consider. But I didn't find those funds here, and I see now from the
welcome page of MFO Premium that that's because the universe here is limited to US funds.
I'm interested in the above funds specifically because they are NOT domiciled in the US. I am losing confidence in the US economy and want to start moving my money off-shore, not to shield it from taxes, but to shield it from a collapse of the dollar. I don't intend to completely abandon US investments, but I want to diversify into other regions. I will probably end up with a new portfolio that includes more conventional European and Asian funds as well as emerging market funds (domiciled outside the US), but I'm starting my research with frontier funds because of their attractive value proposition, of course modulo their commensurate risk.
I would imagine that among the smart people here, there are some who share my concerns about the US economy and may have been dabbling in non-US funds. So I have three questions:
- Is anyone here familiar with any of those funds, or would any of you like to take a look and see what you think from looking over their information?
- Do you know of comparables I should be considering?
- Is (are) there another site(s) analogous to this one for the non-US fund universe?
For some background on how I came to be checking out those three funds, it's because of recommendations from publications of the iconoclastic outfit,
"Sovereign Man". Tim Staermose writes a value investing newsletter there with a foreign focus (
4th Pillar) that I subscribe to and I've bought some of his recommendations. But I don't like stock picking, so I was interested when he started up his own fund, just this month. The other two funds were mentioned in connection with material he provided about how to handle PFICs (i.e., foreign mutual funds, which can be a severe and costly headache if not handled carefully).
(I feel embarrassed linking to the Sovereign Man and 4th Pillar websites above because their pitch is so heavy it feels like the kind of snake oil that would only attract idiots. But I subscribed to the free newsletter for a year and found it worth reading before I anted up for the 4th Pillar (at a substantial discount), and I feel that I've been getting decent value so far.)
I'm a retired techie and have been managing my own finances my whole life with decent results. But I'm not a finance guy, so I only half know what I'm doing. Thanks for your input.
Comments
Several years ago, I looked briefly into making use of a dual citizenship to invest in offshore funds. My reason then was to gain access to funds investing in regions beyond what US-based vehicles offered at the time. Reminding you that this was just a cursory look, what I found was that the loads and higher fees didn't make it worth investigating further at the time.
Now, if your interest is in Africa ex-SA with a focus on sub-Saharan countries (a la African Lions), there's an ETF traded on JSE, The AMI Big50 ex-SA ETF. Not a recommendation, just an observation that you don't have to go the overseas OEF route.
If your concern is rapid devaluation of the dollar, keep in mind that most US-based foreign equity funds are unhedged. If your concern is truly a substantial collapse of the US monetary system, then I expect most people here would disagree with the idea that in that event, other parts of the world will do fine.
Sovereign Man confuses empires with the nation states that arose in the past two centuries, notably after WWI. If the US is indeed an "empire" as asserted, then its scope is worldwide, and we should expect a dark age of global proportion when this "empire" collapses.
As you observed, taxation needs to be handled carefully. Note that even if one elects to treat the PFIC as a QEF, dividends are taxed as ordinary income, not as qualified divs.
Regarding the funds you're looking at - they carry restrictions somewhat analogous to those of private placements in the US. The are sold only to the equivalent of accredited or sophisticated investors (i.e. based on your assets/income and/or demonstrable investment experience), and generally not offered publicly. Even if you circumvent these restrictions, it's worth keeping in mind that they're there for a reason. As you noted honestly, this is not your forte.
Here are a couple of excerpts:
(African Lions Fund): (Sturgeon Capital)
I won't be circumventing any restrictions on making a purchase, and will answer all eligibility-to-invest questions honestly. This will limit me to funds set up to be offered to US persons. I have been finding out that that does reduce what is available to me substantially. Many funds have separate structures set up for selling to US and non-US persons, and some just don't sell to US persons at all, probably because of the draconian reporting requirements, which the IRS has managed to push non-US companies into complying with.
The language in the Sturgeon disclaimer is unclear, and I don't think they have that regional restriction, mostly because they know I'm in the US and they're talking with me. The disclaimer seems to say that they won't sell where selling is illegal, and they especially won't sell in the UK or US if selling is illegal there. I doubt that means to say that selling is illegal to US persons, or they wouldn't be talking with me. It's a website disclaimer, and I suspect that what it's getting at is that they can't sell on the basis of anything on the website, meaning that if I'm interested they'll send me a 100+ pages of more legalese to read before investing.
I don't think Sovereign Man (nor I for the purpose of choosing investments) cares about the historian's distinction between empire and nation state. What matters in this context is whether the US economy is sustainable for another ten to 20 years, and if it isn't, how that will affect my finances before I die. I agree that it is likely that the collapse of our economy will drag down the rest of the world. In that case, we're all cooked. But it's also possible that some other regions may be less affected, and if that happens, then one may benefit from owning something in those other regions.
I'm thinking that my new portfolio may come out looking something like:
- 17% US-based funds of US businesses (mutual/ETF)
- 17% Europe-based funds of Western European businesses (domiciled in Europe, denominated in euros/Swiss francs)
- 17% Asia-based funds of developed-market Asian businesses (domiciled in Asia, denominated in yen/yuan)
- 25% Emerging market funds (domiciled outside the US)
- 25% Frontier market funds (domiciled outside the US)
This is a strategy of diversification by both region and level of economic development. It's interesting that we can talk about the risk of investing in frontier markets because of the potential for political and economic instability and war. But is the US really still a bastion of security? It seems to me that there are some ways in which an investment in Tanzania or Uzbekistan may be safer that one in the United States.When I look at the above list, I get scared. What if I make the wrong choices in the last two categories and lose half my nest egg? But when I ask that, the converse fear comes to mind. What if I keep my diversification entirely within the US and our system crashes under the weight of debt, disease, or war? Then I lose everything. That's scary too.
I think I may have found some partial answers to my third question, which was asking for websites that profile non-US mutual funds. I'm still reviewing these sites to see how much useful information I can find without paying exorbitant fees. From what I see so far, they mainly focus on "alternative" investments, which means private placements, hedge funds, etc., but also include emerging and frontier market funds.
- CitywireSelector
- Asia Asset Management
- Preqin
- BarclayHedge Awards
- HFM
- Investors Choice Awards
I'm interested in hearing from more people with information that supports or refutes what I'm saying, or that answers the three questions in my original post. Thanks guys, and thanks David for this great forum.