For the past couple of years, Americans have been couch potato investors. Like their entertainment, their investments are at home.
As the domestic investing scene starts to stagnate, however, Americans are venturing outside and discovering that international opportunities offer significant returns, particularly over the long haul. It's better than sitting at home and watching reruns.
The amount of new money flowing into international and global mutual funds rose 45% in 1999 from the previous year. (International funds exclude U.S. companies, while global funds may contain U.S. firms.) Unsurprisingly, these flows were particularly strong the last six months of 1999, when domestic markets seemed to struggle even though there were plenty of record highs.
According to the
Investment Company Institute
, the mutual fund lobby, $1.4 billion in new money went into international mutual funds in August 1999 and that figure has steadily climbed in the months since. In December, the most recent month for which there is data, a whopping $7.4 billion poured into international funds. That number nearly matched the entire net increase for all of 1998.
To be sure, the money going to international funds still pales in comparison to that going into domestic funds. Even December's flow was still less than half the amount headed into domestic funds.
Nevertheless, the numbers do indicate that investors, including retail investors, are looking outside the U.S. for investment opportunities. The global economic situation has stabilized. The economies of most countries with markets attractive to investors are now posting positive growth. The major exception is Japan, but even its market is up -- the benchmark
average has climbed 40% over the past year.
Of course, the reason international mutual funds are attracting large amounts of cash is because they have been among the strongest performers over the last year. While technology funds as a class lead
ratings for the last 12 months, a variety of international fund categories is in the top 10 -- Japan stock funds rated second ahead of Pacific/Asia excluding Japan, diversified emerging markets, and Latin America. The
Warburg Pincus Global Post Venture Capital fund, up 176% the last year, is just one of many funds with returns in the double or triple digits.
Can international funds sustain these performances? Of course not, and in fact, a number of advisers believe the investors who want in now may be too late. Harold Evensky, a financial planner at
Evensky Brown & Katz
says "rushing in now is a classic case of buying high." William Rocco, an analyst at Morningstar, last week advised against investing in Latin American funds. On the firm's Web site he wrote: "Despite their spectacular success of late, Latin America funds don't sport compelling long-term records, because they've blown up many times in recent years -- there's little reason to expect the future will be any different in that respect."
Indeed, for the investor looking for short-term gain, international funds are not the place to be. However, over the long term, the rest of the world (or at least a lot of it) looks very good.
The reason? The growth of technology and e-commerce.
While the development of e-commerce is entering its adolescence in the U.S., it is still in its early infancy in the rest of the world, even in many developed countries such as Japan or European nations. Internet usage there still pales in comparison to the U.S. (except for economic powerhouse Finland), but all aspects of the new economy are poised for explosive growth throughout the world.
Benjamin Tobias, president of
Tobias Financial Advisors
, says "overseas has a lot more upside, a lot more potential" than the U.S. He urges investors to look abroad for the long term, at least five years. Evensky advises investors to have 25% of international exposure in their portfolio. Tobias has 50% of his personal investments in overseas funds.
Investing internationally, especially in emerging markets -- with currency fluctuations and political uncertainty -- is by nature risky. But Tobias says, "In 1990, I would have told you to invest in international and I'm telling you the same thing now."
Think of the rest of the world as being where the U.S. was in, say, 1993 or 1994 with respect to technology and the Internet. Tobias may be on the money.
David Kurapka's Global Portfolio (formerly called Trade Winds) column appears Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at