By John Waggoner, USA TODAY Tue Jan 16, 7:20 AM ET
Lured by red-hot gains in foreign markets, investors poured money into international stock mutual funds at a record-shattering pace in 2006.
Investors flooded international stock funds with an estimated $150 billion last year, according to TrimTabs.com, which tracks flows of money into and out of mutual funds. An estimated $180 billion flowed into stock funds of all types.
By contrast, "The $30 billion that went to U.S. stock funds is the smallest since 2002," says Charles Biderman, CEO of TrimTabs.com.
In November, the last month for which figures are available from the Investment Company Institute, the funds' trade group, $11.5 billion flowed to international funds. Meantime, funds that invest mainly in the USA saw an outflow of $169 million.
Surging foreign stocks and a falling dollar have sent international funds flying, and investors are chasing the gains, Biderman says. The average large-company international core fund gained 24.3% in 2006, vs. 12.4% for the average U.S. stock fund, according to Lipper.
Outsized gains in European stocks have propelled much of the rise in international funds. The German DAX index has gained 22.8% over the past 12 months. The falling dollar has amplified those gains: A U.S. investor in the DAX index would have gained 30.9%, according to Bloomberg.
Some more specialized funds produced even more spectacular returns. For example, stocks in the so-called BRIC countries - Brazil, Russia, India and China - have soared over the past few years. And funds that concentrate on those countries have rocketed, too. The average fund that focuses on the Chinese stock market jumped 61.5% last year.
U.S. investors poured about $100 billion into BRIC countries last year, Biderman says. That could be one big reason foreign markets are faring so well.
"The U.S. is giving them its money," Biderman says.
At the same time, the rush abroad might be overdone. Should the U.S. dollar strengthen, overseas markets suffer a slowdown or the U.S. stock market surge, new international investors could miss out on the party.
While some believe the U.S. economy will weaken, Biderman says, "It's stronger and growing faster than Europe or Japan."
The relatively small $30 billion inflow to U.S. stock funds in 2006 looks even punier compared with the estimated total $650 billion that U.S. savers and investors socked away last year. Investors put $206 billion into money market mutual funds through November 2006, according to the ICI. Just $16.2 billion flowed into money funds in the same period in 2005.