Last week, S&P Capital IQ announced the finalists for its second annual U.S. Mutual Fund Excellence Awards Program. Thirty actively managed mutual funds made the cut in 10 asset-class categories. Next month, S&P will name the gold, silver, and bronze medal award-winners in each category. In this four-part series, we'll take a closer look at the finalists in some of the more popular asset class groups. Are your funds amongst the winners?

Foreign flavor
In Part 1 of this series, we looked at S&P's award-winning large-cap funds, while Part 2 and Part 3 examined the mid-cap and small-cap fund candidates. Today we wrap up our discussion of these fund finalists by turning our attention to the international equity category. As the U.S. becomes a relatively smaller and smaller part of the global market, it's vital that investors devote a meaningful portion of their portfolios to companies located outside U.S. borders. If you're relatively young, aim for at least 25% exposure to foreign stocks or funds; if you're already retired from the workforce, a 10% allocation may be more up your alley.

S&P's three finalists in this category are Harding Loevner International Equity Portfolio (HLMNX), Manning & Napier International Series (EXITX),and Schwab Fundamental International Large Company Index Fund (SFNNX). It's interesting to see an index fund here alongside two actively managed fund options, although the Schwab fund tracks an underlying index that employs "fundamental indexing," which derives portfolio weights based on company financial and valuation measures rather than on market capitalization. So in reality, the fund occupies a space that overlaps both active and passive investing.

The Investor shares of the Harding Loevner fund date back only to 2005, although the fund's track record for the Institutional version of the fund go back even further, to 1994. Although the fund had stuck with the same lead manager since its 1994 inception, that manager left the fund this past June. However, the two new co-managers have been working on the fund since 2001 and 2004, so there's some continuity here.  The Manning & Napier fund, with an inception date of August 1992, has used the same team-based investing approach throughout the fund’s life. Lastly, the Schwab fund has been around since only early 2007, but manager tenure and a long-term track record aren't as vital for index funds as they are for actively managed options. Although given that fundamental indexing is relatively new to the market in practice, investors might want to see more of a history here before jumping in.

As might be expected, the Schwab index fund wins the contest for lowest-cost investment, with a low 0.35% price tag, compared with the Harding Loevner fund's 1.25% expense ratio and Manning & Napier's 1.16% price of admission. Turnover for the Manning & Napier Fund is a fairly stable 13%, while Harding Loevner clocks in with a 33% annual turnover figure. The Schwab fund sports 65% annual turnover, a surprisingly high number compared with other passively managed index funds.

Since the Schwab fund's inception in May 2007, that fund has posted an annualized 4.8% loss, while the Harding Loevner fund has seen a 0.6% gain and the Manning & Napier fund a 0.2% return. While Harding Loevner International Equity ranks in the top 37% of its peer group over the past decade, over the most recent 15-year period, it falls to the top 55%. In that same 15-year time frame, Manning & Napier International ranks in the top 3% of all foreign large-value funds with an 8.4% annualized return.

Best in show 
My pick for the gold-medal winner in this category: Manning & Napier International Series.

All three funds have a lot going for them, but I think the Manning & Napier fund takes the prize in this category. I like the general concept of fundamental indexing with the Schwab fund, but there are still a number of market-cap-weighted foreign index funds and exchange-traded funds that are cheaper than the Schwab option. For example, Vanguard Developed Markets Index (VDMIX) is just 0.22% while an ETF like the Vanguard Total International Stock Index ETF (NYSE: VXUS), which tracks developed and emerging markets, will run you just 0.20%. In theory the idea of fundamental indexing is sound, but only time will tell whether it will add value beyond what a cheaper, market-cap-weighted index fund can offer.

And although Harding Loevner International Equity will probably continue to perform just as well as it has in the past few years, I have a bit of hesitation over the fact that the fund's lead manager just left. It's true that of the two new co-managers, one has been with the fund for a decade, and the other for seven years, but there still could be some subtle changes in the portfolio and in how the fund is run going forward.

Manning & Napier International's team approach ensures that the fund isn't overly reliant on any one individual and that the process should remain consistent over the years. Right now, Germany, one of the financially healthiest eurozone nations, takes top priority in the portfolio, at roughly 16% of assets. In this space, relatively inexpensive names like Siemens (NYSE: SI) and chemical company BASF land in the fund's top holdings alongside U.K. consumer names like Unilever (NYSE: UL) and drug firm AstraZeneca (NYSE: AZN). Performance here has been more consistent over the years than at the Harding Loevner fund, with the fund performing well in both positive and negative market conditions. A well-diversified portfolio, low turnover, and reasonable expenses round out the package here. Manning & Napier International Series is a fund that can safely serve as the core anchor of any foreign investor's portfolio.