Domestic equity funds are increasingly turning to overseas markets for their holdings, due to their strong returns, with more than 100 funds now holding 20% or more of their portfolios in overseas stocks, The Wall Street Journal reports.

"There is some performance-chasing going on," said Dan McNeela, associate director of fund analysis at Morningstar.

At the start of last year, for instance, the American Century Heritage Fund was 93% invested in U.S. stocks, but now it has only 76% of its holdings in them.

Of course, this is wreaking havoc on investors' portfolios that have been carefully diversified. But at least some funds are revealing the shifts in their holdings to their investors, like the Wasatch Micro Cap Value Fund. In its most recent annual report, it noted that it has 15% of its holdings in international stocks, which, it pointed out, returned nearly 37% in 2005.

On the other hand, the Janus Growth & Income and Janus Olympus funds, which have double-digit investments overseas, make no mention of these holdings or the strategy behind them in their more recent shareholder reports.

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