U.S. Investors Returning to International Stock Funds
Americans have become heavy buyers of international stock mutual funds for the first time since last summer--another sign that worries about the global economy are fading.
Attracted by soaring returns in Asian and Latin American markets, U.S. investors are on pace to put a net $6.6 billion this month into funds that invest in foreign stocks, according to Santa Rosa, Calif.-based research firm Trimtabs.com.
Although that would be about half what is expected to flow into U.S. stock funds, it represents almost as much net new money as investors put into international funds all last year.
If the June projection holds, it would be the largest monthly inflow into international funds since at least January 1997, according to the Investment Company Institute, the fund industry’s chief trade group.
After the global market calamity that began in August, U.S. investors were net sellers of international funds in every month but January.
Even though Asian and Latin markets rebounded in the first quarter, it wasn’t until May that international funds again began to attract net new cash.
Now, “there is a discernible trend that investors are returning to foreign stock funds,” said Brian Mattes, spokesman for Valley Forge, Pa.-based Vanguard Group, the nation’s second-largest fund company:
* T. Rowe Price Associates in Baltimore said more new money is flowing into its international stock funds this month than into its U.S. funds.
* Brokerage Charles Schwab, which operates one of the country’s largest mutual fund supermarkets, said international stock funds have attracted more new money so far in June than any other stock fund category--by far.
In fact, just about half of all net inflows into stock funds at Schwab this month have gone into international stock funds, the firm said.
* Strong Funds in Milwaukee reported that its Asia Pacific fund has seen its total assets double thus far this year. More than half of the new money arrived in the first 17 days of June.
* Franklin Templeton, American Century and the Newport Funds are among other firms reporting an increase in foreign-fund buying in recent weeks.
“Performance is clearly the driver,” said Greg Schultz, principal with Asset Allocation Advisors in Walnut Creek, Calif.
Year to date, the average international stock fund (which includes funds that invest in only foreign stocks and those that invest in a mix of foreign and U.S. stocks) is up 13.3% through Thursday, according to Lipper Inc.
By contrast, the typical U.S. stock fund is up 7.9%.
Emerging markets in Asia and Latin America, along with the Japanese market, are leading the foreign rally. The average emerging-markets fund is up 31.6% year to date.
What is less clear, Schultz said, is if current U.S. buyers of foreign stocks are making a commitment to this asset class as a core holding or if they will bolt should markets again slump.
If the trend does continue, “it would be very good news for investing in general,” said Bill Dougherty, an analyst with Boston-based mutual fund consultant Kanon Bloch Carre.
“It would indicate that the markets are truly broadening out,” he said. “It’s happening in [U.S.] value stocks and small stocks. International is just another asset class perking its head up.”
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* RALLY CONTINUES: Asia’s stock markets rocketed again as Japan weakened the yen. C4
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Overseas Urge?
Americans are buying international stock mutual funds this month at the fastest pace since early 1997. Monthly net cash inflows or outflows of international funds, in billions:
June: $6.6 billion*
May: $1.2 billion*
* Estimated
Source: Investment Company Institute, TrimTabs.com
