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Mutual Fund Managers Buy Abroad

Janus, Oppenheimer, MFS and other mutual funds are seeking out investments outside the U.S., where company earnings are growing faster.

NEW YORK (

TheStreet

) --

Janus Worldwide

(JAWWX) - Get Report

typically keeps half its assets in the U.S. and half abroad. But these days most assets are overseas.

Manager Laurent Saltiel looks for companies that can increase earnings, and he's finding the best growth outside the U.S. "In many overseas markets, you can find higher growth and lower valuations," Saltiel says.

At a time when the U.S. economy remains sluggish, growth is strong in such countries as Australia, Brazil, and India. Analysts expect that international markets will continue to lead the global recovery.

Bank of America's

(BAC) - Get Report

Merrill Lynch subsidiary estimates that U.S. gross domestic product will grow by 3.2% in 2010, compared with 4.8% for overseas economies.

The healthy picture abroad is creating opportunities for international funds. Managers of foreign funds say they can find plenty of companies with the potential to deliver double-digit earnings growth next year.

Helped by improving earnings prospects, foreign large growth funds have returned 36% this year, outpacing the S&P 500 by 11 percentage points. To bet on a continuing strong showing abroad, consider

Oppenheimer International Growth

(OIGAX) - Get Report

. Oppenheimer has returned 7% annually during the past five years, outdoing 87% of its foreign large growth peers. The fund has been a consistent performer, outperforming competitors during the downturn of 2008 and surpassing the averages in this year's rally.

Manager George Evans seeks out companies that can grow steadily for three to five years. He wants businesses that have the wind at their backs because their industries are expanding.

A favorite holding is

Autonomy Corp.

(AU.L)

, a British software producer that enables corporate users to search through their databases and e-mails. Signing new licensing agreements, Autonomy's revenue climbed 51% in the third quarter. "Five years from now, this company will be a lot bigger," Evans says.

Evans also owns

LM Ericsson Telephone

(ERIC) - Get Report

, the Swedish provider of equipment for mobile-phone systems. Sales should grow as cellular service expands in emerging markets and demand for smart phones increases.

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Another fund that has excelled in up and down markets is

MFS International Growth

(MGRAX) - Get Report

, which returned 7.2% annually during the past five years. The fund only takes market-leading companies that can increase earnings by at least 10% annually for the next five years.

Manager Brett Fleishman typically underweights slow-growing sectors, such as utilities and transportation. He overweights consumer staples and health, groups that include steady growers. A holding is

Sonova

(SOON)

, a Swiss producer of hearing aids. In its most recent period, the company increased sales by 17% and earnings by 22%. Helped by new products, the company is gaining market share. "Sales will grow for years as the population ages in Europe and the U. S.," Fleishman says.

Fleishman also likes

China Unicom

(CHU) - Get Report

, the second-largest mobile-phone-service provider in China with 140 million subscribers. Sales should continue growing as new customers race to sign up for mobile service.

Investors with only a moderate taste for risk should consider

Janus International Equity

(JAIEX)

or Janus Worldwide. Both funds hold growth stocks, but Worldwide owns a mix of foreign and U.S. names, while International Equity focuses on foreign markets. Saltiel, who manages the funds, favors high-quality stocks that can prove resilient in downturns.

Saltiel likes

Novo Nordisk

(NVO) - Get Report

, a Danish maker of products used to treat diabetes. He says the company can grow at a 10% annual rate because of growing demand. "Diabetes is spreading rapidly in Asia, Europe and the U.S.," he says.

Saltiel is partial to banks in the emerging markets. Since they largely avoided problems with toxic assets, many institutions in Asia have solid balance sheets. Saltiel favors

HDFC Bank

(HDB) - Get Report

, a fast-growing Indian institution. In the most recent quarter, revenue climbed 18%, while earnings increased 30%. Saltiel believes earnings can grow at a 20% rate for the next five years. Much of the expansion will come from rapidly growing mortgage markets. In the past, few Indians bought houses with mortgages. But now many are rushing to finance home ownership.

Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.