Foreign Funds Gain on U.S. Inflation Fears

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Funds that focus on regions and precious metals topped the one-month performance list. The common theme is the fear of inflation in the U.S. weakening the dollar.

Treasury Secretary Timothy Geithner won't acknowledge that quantitative easing, the buying of U.S. Treasury debt by the Federal Reserve with newly created money, is essentially monetizing the debt and diluting the buying power of the U.S. dollar. However, investors just don't believe inflation can remain low and stable over the near future as deficits skyrocket.

As the dollar falls, precious metals priced in U.S. dollars ascend. In May, the spot price of gold rose $90.95 to $979.15 per ounce, the highest level since late February. Spot silver added $3.37 an ounce to reach $15.74.

The best-performing stock mutual fund in May, ProFunds Precious Metals UltraSector ProFund(PMPIX Quote), soared 51% in one month. The hottest members of the Dow Jones Precious Metals Index, to which the fund is 150% leveraged, showed returns of 40% in Agnico-Eagle Mines(AEM Quote), 37% in AngloGold Ashanti(AU Quote), and 32% in Barrick Gold(ABX Quote). But, none of these miners beat the 44% gain in Goldcorp(GG Quote). (See my April 29 recommendation.)

In my recent article on the best- and worst-geographically focused funds, I examined foreign funds that look more attractive when the U.S. dollar weakens. Four of the seven best-performing funds specialize in the stocks of India, whose currency, the rupee, has strengthened by 6.4% against the U.S. dollar.

Indian stocks doubling in value that helped the Matthews India Fund(MINDX Quote) to a gain of 40% were Financial Technologies India, up 105%; Vishal Retail, up 101%; and SREI Infrastructure Finance, up 100%.