U.S. Investors’ Fervor for Overseas Markets Resumes
Americans’ appetite for foreign stock and bond mutual funds quickly revived in July, while their interest in domestic funds continued to wane.
Foreign funds took in a net $7.3 billion of new cash last month, as many overseas markets rebounded from their mid-May to mid-June sell-off, fund tracker Financial Research Corp. in Boston said Monday. Foreign funds had an outflow of $1.6 billion in June.
U.S. blue-chip stocks also rose in July, but smaller stocks were lower. Overall, investors pulled a net $2 billion from U.S. stock funds in the month, after pulling $238 million in June, Financial Research estimated.
Net cash flows measure fund purchases minus redemptions.
Americans have been heavy buyers of foreign stocks for the last two years, as many of those markets have far outperformed Wall Street. From January through July, foreign stock and bond mutual funds available to U.S. investors took in a net $113.4 billion of fresh cash, according to Financial Research.
By contrast, domestic stock funds had a net inflow of $21.4 billion in the period; U.S. bond funds took in $22 billion.
The average foreign stock fund was up 10.6% year to date through Friday, according to Morningstar Inc. The average U.S. stock fund was up 2.5%.
The dollar’s slide this year against major foreign currencies has helped to stoke foreign funds’ performance. Strong foreign currencies mean that stocks and bonds denominated in those currencies are worth more when translated into dollars.
The French stock market this year is up 9.2% in euros and 18.1% in dollars. The Australian market is up 6% in Australian dollars and 9.8% in U.S. dollars.
Among fund companies, Barclays Global Investors, which sells the Ishares family of exchange-traded funds, had the biggest net inflow in July. The company took in $4.7 billion, Financial Research said.
Exchange-traded funds are mutual funds that tend to focus on market niches, such as stocks in specific industries.
Los Angeles-based American Funds, managed by Capital Group Cos., had the second-largest cash inflow in July, taking in nearly $3.5 billion. The companies’ funds, which mostly focus on blue-chip stocks worldwide, have been the most popular funds with U.S. investors for the last four years.
But American Funds’ cash inflows are down this year compared with 2005. The company took in $40.9 billion in the first seven months, compared with $48.9 billion in the year-earlier period, Financial Research said.
The investment return of Growth Fund of America, the largest of the American Funds, is 2.8% year to date, trailing the 5.5% gain of the Vanguard 500 index fund, which tracks the Standard & Poor’s 500 index.
