Rally Takes a Holiday

When you go on vacation and determine not to keep close tabs on the markets, there are still ways the markets have of finding you.

On Presidents Day, there was no news to ignore -- markets were closed -- and talk around the hotel pool and in the elevator was of suntans, dinner plans and spring training. But after last Tuesday's sharp selloff and the seemingly bizarre link to South Korea selling dollars, even vacationing parents heading to the beach were wondering aloud if their portfolios were in trouble. A friend at dinner asked why the Koreans were raising the cost of her new mortgage. And I found myself peeking at the headlines on the business page on my way to grabbing my morning coffee.

But when no further damage was done, attention returned to Floridian pursuits for the rest of the week. And though I'm now getting back in the flow, I doubt many beachcombers will even notice Monday's regression.

Still, these kinds of outsized negative events have a more lasting impact. Investors, or their financial advisers, have been hearing a lot about dollar weakness, and are continuing to look beyond the U.S. market for stocks, helping feed the creeping slide that has beset domestic stocks most of the year.

A report out last week from the mutual fund industry's trade group, the Investment Company Institute, showed that almost all of the flow into stock funds in January -- about $8.1 billion out of $8.7 billion total -- went to overseas investments. The trend has continued for the past two weeks, according to AMG Data. Of almost $5 billion sent to equity funds, about $3.8 billion went to "nondomestic" investments.

With so many global companies and brands familiar to American consumers, there's apparently been some spillover to American investors. The trend may have some legs as it's worked out pretty well, too. Domestic large-cap funds that don't have a particular focus on growth or value are up just 0.3% this year, growth funds are down 2% and value funds are up 1.4%. At the same time, Latin American funds are up 12%, Pacific funds excluding Japan are up 5% and Europe funds are up 4%, according to Morningstar.