International Stock Mutual Funds Become Hot Sellers

For many investors in stock mutual funds, international funds aren’t just an interesting novelty anymore.

By the accounts of several fund organizations, they’ve become some of the hottest sellers of all in an industry that is enjoying extraordinary growth.

“We’ve been seeing tremendous interest, even during the past four years when many foreign stock markets weren’t doing that well,” says Steven Norwitz, a spokesman for T. Rowe Price Associates, a Baltimore firm that runs a fund family with nearly $30 billion in assets. “This year, the interest is really exploding.”

Like T. Rowe Price, Scudder, Stevens & Clark Inc. of Boston said its five international and global funds had record net sales in July. The inflow was up 75% over June, spokesman Gavin Quill said.

At midyear, Lipper Analytical Services Inc. reported that more than 300 world equity funds it follows had almost $53 billion in assets, representing about one-tenth of the total in all stock funds.

Yet many observers see plenty of room for further expansion of that share. As a guideline, T. Rowe Price suggests that investors put 20% of a diversified stock-market portfolio in overseas investments.

“Most people are nowhere near that,” Norwitz said. “We figure that individual investors have maybe 5% on average, and U.S. institutions about 10%.”

Also, Norwitz notes, foreign markets now account for about 58%, or nearly three-fifths, of the value of a world stock index calculated by Morgan Stanley Capital International of Geneva.

As recently as 1970, the U.S. market made up two-thirds of the total. If current trends continue, figures Norman Kurland, manager of the Pioneer International Growth Fund, in another 10 years the U.S. share would be down to 20%.

The international funds have received a big push this year from rallies in many foreign markets, notably Japan’s.

The nearly 200 international funds tracked by CDA-Wiesenberger of Rockville, Md., chalked up a 13.6% total return in the first half of this year, against 4% to 6% for the major categories of domestic stock funds.

At the same time, Wall Street has been full of talk lately that foreign markets offer better values than are available on Wall Street.

Whether those expectations will be borne out remains to be seen. But the past record does suggest that markets around the world follow widely divergent and highly unpredictable courses.

So, most analysts agree, investing across international boundaries is a logical step in building a diversified money-management strategy.

It’s also widely accepted that mutual funds and other professionally managed pools of money are natural vehicles for international investing because of the special problems that mission presents to the typical small investor.

“Many professionals recommend that their clients include foreign investments in their portfolios to reduce volatility and improve long-term performance,” says the Institute of Certified Financial Planners.

“The homework and difficulty involved in directly buying foreign stocks is too much for most investors, however, so investing through global or international stock mutual funds provides an easier avenue.”

None of this means that international investing is a cakewalk. Even in the course of a robust first half, June was “a wicked month in the overseas markets,” noted Daniel Weiner in his Independent Adviser for Vanguard Investors newsletter.