Be Your Own Fund Manager
William Baldwin, Forbes Staff
Bad idea: Cut surgical costs by taking out your own appendix. Not such a bad idea: Cut costs by acting as your own global fund manager.
Funds that invest abroad tend to be expensive. Instead of buying one, you could put together your own portfolio of one or two dozen individual stocks. That would spare you fund fees. It would also give you the opportunity to capture thousands of dollars in tax benefits that funds cannot offer.
Now a proliferation of American Depositary Receipts, English-language corporate websites and online trading deals make Frankfurt and Tokyo almost as accessible as New York. Charles Schwab has ratings on 4,000 foreign stocks. Fidelity Investments has lots of research plus a recently expanded system that allows investors to send online trades directly into 17 foreign markets.
Many of the biggest foreign companies, like Vale, HSBC and Toyota Motor, have ADRs that trade, in large volume, on the Big Board. That means you can get in for a commission of $5 to $9 plus a trading cost (half the bid/ask spread) of a penny a share or so.
For other stocks the trading costs are somewhat higher. In many cases you have two choices: use dollars to buy shares or ADRs in the U.S. over-the-counter market or else convert your dollars into foreign currency and then trade overseas. If the ADR is illiquid or nonexistent, the latter route makes sense.
Schwab offers a combo deal to investors who want to trade on a foreign bourse. You pay 0.5% (with a minimum of $100) to cover the cost of both converting your dollars and executing the foreign trade.
Fidelity’s arrangement is attractive for investors who do a lot of trading and/or want to keep some cash in foreign currencies because they don’t like the dollar. You pay a sliding fee to convert a lump sum into another currency and then a separate fee for each trade. You can, for example, convert $100,000 into euros at a cost of 0.75%, then use those euros to place trades in France, Germany and so on. The flat online commission varies by market between $14 and $38.
Jeffrey Power, a 64-year-old psychotherapist in Houston, uses the Fidelity platform to get his hands on shares of foreign companies that, despite large market values, are not at all known in the U.S. He says, “I want exposure to natural resources, energy, agriculture and precious metals, and a lot of the better-managed companies are headquartered outside the U.S.”
In December Power used 13,260 of his Australian dollars to pick up..............