Top 3 International Funds for 2021

Following the stock market crash triggered by the COVID19 crisis in March 2020, the U.S. dollar started to decline compared to the basket of major currencies (Chart 1).

Chart 1.

The declining dollar makes international investments attractive for U.S. investors. We think that if the dollar continues to decline in 2021, the Fidelity Diversified International Fund (FDIVX) will continue to perform well (Chart 2).

Chart 2.

Emerging markets have outperformed developed markets in Europe and the U.S. since the market recovery started in May of 2019. The Fidelity Emerging Markets Fund (FEMKX) has a stellar long-term track record and may be a great way to play the continuation of this trend (Chart 3).

Chart 3.

For aggressive investors, the rapid growth of Asian markets can offer an appealing opportunity. Asian markets declined to a lesser extent during the COVID19 market crash than the U.S. market and recovered faster in the aftermath. The chart of the Fidelity Southeast Asia Fund (FSEAX) shows how strong and steady this trend has been (Chart 4).

Chart 4.

As a word of caution, we’d like to remind our readers that in our view, global stock markets are highly overbought right now due to the combination of large fiscal stimuli, and dovish monetary policy. Consequently, we anticipate a correction in the near future. However, we think that the trends of relative outperformance by international markets can continue in 2021, and investors will likely have an opportunity to buy at lower prices.

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International Markets in Turmoil

Geopolitical risks are on the rise again with weakness in European markets due to the intense negotiations around the potential exit of Greece from the European monetary union. The negative performance of the Greek stock market reflects the uncertainty about the outcome of the negotiations:

In addition to Greece, the sudden and dramatic selloff of Chinese stocks has the potential to destabilize international markets. A-shares, which are traded in Mainland China at the Shanghai and the Shenzhen Stock Exchanges, are impacted the most, while shares in Hong Kong are holding up relatively well:

As the result, most Fidelity mutual funds that invest in international markets are no longer trending higher. Examples include the Southeast Asia Fund (FSEAX), the Emerging Markets Fund (FEMKX) and the Diversified International Fund (FDIVX):

In our previous article we wrote about the potential of the natural resources sector to further rally and to provide market-leading results in 2015. Unfortunately the selloff in the Chinese market, which is a major consumer of commodities, caused an unexpected reversal. The chart of the Select Natural Resources Fund (FNARX) shows the sudden reversal of the emerging bullish trend:

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Why Diversify into International Markets

The prospect of worldwide economic recovery in 2015 is already making investors rethink their diversification strategy. Equity markets often anticipate economic changes 6 to 12 month into the future, as market participants are taking positions ahead of time.

One of the best ways for conservative investors to participate in the renewed interest in international markets is via the Fidelity Diversified International Fund (FDIVX).  FDIVX invests 58% of its assets in Europe, but Japan and Emerging Markets carry large weightings, as well. FDIVX also invests 12% of its assets in the United States.

From the technical analysis perspective, the two-year chart of FDIVX shows a strong bullish trend that was interrupted by a correction only last June. For most of 2014 the fund moved sideways until the recent breakout to a new high:

 

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Emerging Markets Underperform

The chart below shows the relationship between the Fidelity Emerging Markets Fund (FEMKX) and the Fidelity Spartan 500 Index Fund (FUSEX) by plotting the ratio of the two over the last two years. The declining line is an indication of the continuing underperformance of emerging markets compared to U.S. equities.

Taking a closer look at the chart of FEMKX helps us understand the underperformance. While U.S. equities are currently in a strong bull market, the FEMKX chart looks anything but bullish.

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Emerging Market Investments are Loosing their Luster; Latin America Fund is the Weakest

The Fidelity Latin America Fund (FLATX, last change: -1.54%) dropped to a new 52-week low.

The Fidelity China Region Fund (FHKCX, last change: -1.40%) is still in uptrend and has outperformed other emerging market funds.

 

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Market Rotation: the Fidelity Emerging Markets Fund is a Top Choice

Emerging markets have underperformed U.S. equity sectors so far in 2013, but should this trend reverse, the Fidelity Emerging Markets Fund (FEMKX, last change: 0.87%) is one of the best ways to participate for investors seeking increased international exposure. The FEMKX chart looks increasingly bullish with today’s breakout from the trading range that started in January.

 

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Bull Corner: Stellar Performance by Emerging Markets Income Fund

The Fidelity New Markets Income Fund (FNMIX, last change: 0.34%) is now the top bond fund based on its 2012 performance in our daily survey of Fidelity funds. The 4.79% yield has contributed to the stellar 16.99% year-to-date return by FNMIX.

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