Foreign Funds Gain on U.S. Inflation Fears

Mutual funds that focus on regions and precious metals performed the best last month, helped by U.S. fears of inflation.
Author:
Publish date:

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.

Image placeholder title

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) - Get Report

, 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) - Get Report

, 37% in

AngloGold Ashanti

(AU) - Get Report

, and 32% in

Barrick Gold

(ABX)

. But, none of these miners beat the 44% gain in

Goldcorp

(GG)

. (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) - Get Report

to a gain of 40% were

Financial Technologies India

, up 105%;

Vishal Retail

, up 101%; and

SREI Infrastructure Finance

, up 100%.

Many of the largest foreign companies are natural-resources plays securing higher prices for their commodities. Up 45% in May,

ProFunds UltraLatin America

(UBPIX) - Get Report

benefited from gains of 47% from Brazilian steel producer

Gerdau

(GGB) - Get Report

, 36% from Mexican cement producer

Cemex

(CX) - Get Report

, 34% from Peruvian gold miner

Cia de Minas Buenaventura

(BVN) - Get Report

and 31% from Brazilian oil producer

Petroleo Brasileiro

(PBR) - Get Report

.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.