Foreign Funds Will Continue Growth in 2008

U.S. individual investors will continue to chase the high returns in foreign-stock mutual funds in 2008, at the expense of domestic funds, according to the Los Angeles Times.

Investors poured a net $129 billion into foreign funds through November, reaching total assets of $1.68 trillion, according to the Investment Company Institute.

Domestic stock funds, by comparison, had a net outflow of $37 billion during the same period, with assets totaling $4.92 trillion through November.

Thanks to the weak U.S. dollar and booming economic growth abroad, foreign-focused funds have outperformed domestic stocks funds every year since 2002, according to Morningstar Inc.

Big-name U.S. growth stocks had a big comeback in 2007, with the Fidelity Magellan fund posting a total return of 18.8% last year, more than three times the gain of the Standard & Poor’s 500 index.

From 2001 to 2006, Magellan averaged gains of just 3.4% a year, but Magellan’s holdings in Google Inc., Schlumberger Ltd., and tech and energy issues gave the fund a long-needed break.

On the other end, the Dodge & Cox Stock fund ended its winning streak in 2007, posting a total return of just 0.1%. From 2003 to 2006, the $63-billion fund gained 15.6% a year by focusing on big-name value stocks.

That strategy backfired in 2007 when Dodge & Cox’s favorites experienced slumps, with Comcast Corp., Time Warner Inc., News Corp., Pfizer Inc. and Motorola Inc. stocks going cold.

Dan Culloton, an analyst at Morningstar, said patient investors will see positive long-term results.

“We think those who stay the course here will be rewarded,” he said.