U.S. investors are getting more familiar with overseas equity.
According to recent data, investment in equity funds continues to flow into international stocks, while investment in U.S. equity is slowing.
At the same time, initial public offerings in foreign equity markets are rising at a faster clip than on U.S. exchanges.
The news comes as foreign equity market performance eclipses that of U.S. equities and fund managers encourage clients to move their money across the Atlantic.
"International equities in both developed and emerging markets has been outperforming the U.S., so that's driving increased U.S. investor interest in overseas equity," says Alec Young, equity market strategist at S&P equity research services. "It's not surprising at all to see money flows supporting non-U.S. equities."
In July, fund flows into world equity funds were $7.5 billion, compared to an outflow in U.S. equity funds of $2.4 billion, according to data in a Merrill Lynch research report on Wednesday. Year to date, nearly $106 billion has gone to world equity funds, compared with $38 billion invested in U.S. equity funds.
"It's just a judgment call that there is a slowing U.S. economy vs. the global economy having more momentum behind it," says Jay Suskind, head of institutional equity trading with Ryan Beck.
Over the past year, the FTSE 100, an index that tracks performance of the top 100 companies on the London Stock Exchange, is up around 11% for the year. Japan's Nikkei 225 is higher by nearly 28% for the year, and the Amsterdam Stock Exchange is up almost 19%. Meanwhile, the S&P 500 is up only 7% for the year.
Now, money managers are taking a keen interest in non-U.S. stocks.
"Only 17% of U.S. equity exposure is in international stocks, so Americans don't really own enough of foreign equity," Young says. "So a lot of firms are recommending investing in international funds."
As a result, the money managers with a strong focus on international equity funds have benefited, while those with a U.S. concentration are struggling.
all had equity inflows in July, while
At the same time, initial public offerings are flocking to foreign stock exchanges. New listings in the U.K. have reached $35.6 billion this year, according to data from Dealogic, up more than 160% from the same period last year. Non-U.K. based listings in London have more than tripled to $21 billion.
Listings on U.S. exchanges also have increased, but at a much slower pace. The total amount of new equity in the U.S. rose 41% from a year ago to $129 billion.
Sarbanes-Oxley, which has strict regulatory guidelines for listing in the U.S., has deterred many companies from listing on the U.S. exchanges, including the
New York Stock Exchange
Nasdaq Stock Market
, Young says. But foreign equity markets also are becoming mature, making non-U.S. investments more secure than in the past.
"The rest of the world is growing up from a capital markets standpoint, and New York is no longer the de facto choice," Young says. "There are more influential companies that are overseas-based, so the New York exchanges are less of a no-brainer."