As the dollar continues to decline in value against foreign currencies, mutual fund investors in some international socks and bond fund investments have more than doubled their returns, according to The Wall Street Journal.

The current impact “has been a huge part of the story why foreign mutual funds have done so well,” says Dan Lefkovitz, an analyst at Morningstar in Chicago.

However, not all mutual funds handle currency swings in the same way. Most mutual funds have the ability to neutralize the impact that the dollar’s swings can have on returns, but they chose not to do so. They argue that exchange-rate swings are an important part of portfolio diversification. Others try to offset currency volatility as much as possible with financial transactions known as hedges.

Like anything in the markets, currencies don’t move in just one direction. If the bulk of the dollar’s declines is history, investors owning a fund that doesn’t hedge won’t be the windfall that it has been in recent years.

The currency effect has been a significant driver of international stock returns this year for investors based in the U.S. and has also helped magnify the performance gap between U.S. funds and international funds.

Attracted by outsized returns, investors have poured money into non-U.S. funds at a furious pace. In the first nine months of this year, international and global funds hauled in $134 billion while U.S. stock funds collected $20 billion.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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