American investors are pouring $3 billion a month into foreign stock mutual funds, hoping to spread their risks beyond a dauntingly high market in the United States.
But the 25 percent surge in net money flows from last year has left many investors poorer, if better diversified.
World stock funds are up 12 percent on average for the year to date, and were flat in the July-September quarter. US stock funds, by comparison, are up 26 percent for the year, and almost 12 percent for the quarter, according to Lipper Analytical Services in New York.
Overseas performance has been spotty. European-stock funds took the lead last quarter with a 6.4 percent gain (18 percent for the year). Latin America funds were up 5.5 percent after a stunning first-half performance, for a year-to-date return of 42.6 percent.
Asia funds took a drubbing, with a weak Japanese economy and currency turmoil that spread from Thailand throughout Southeast Asia. Pacific funds are down 6 percent for the year, after slumping 12 percent in the third quarter.
Henrik Strabo, co-manager of the 20th Century International Discovery Fund, remains undaunted.
"Unbelievable opportunities" exist for investment abroad now that the cold war is over and many nations are privatizing government-owned companies, he says.
"American-style capitalism is creeping into every corner of the world," says Mr. Strabo, a Dane who works at American Century Investments in Kansas City, Mo. (800-345-2021).
Shares in Strabo's $670 million Discovery Fund are up 27.6 percent this year through Sept. 30, making it one of the best-performing foreign funds. Strabo did it by sticking to Europe, where gains were fueled by hopes of a US-style profit boom.
"Down dips are sometimes good times to buy," says Robert Swift, who manages the Putnam International New Opportunities Fund (up 22 percent this year; $2 billion in assets; 800-225-1581) and the more conservative Putnam Global Growth Fund (up 20 percent; $6 billion in assets).
But, unsure when Asian markets will recover, the Boston-based manager says: "As things stand today, we won't be buying there. It's so volatile."
For a three-year time span, he finds Southeast Asia's economic growth rate - twice that of the US - alluring.
He says that Americans are gaining in sophistication and are less likely to panic. They understand that currency swings may devalue their shares in US-dollar terms.
But they value foreign exposure. International stocks have doubled their share to 10 percent of all US stock-fund assets, up from 5 percent in five years ago.