With foreign stock mutual funds delivering an average 12.7% gain over the past three years versus 4.9% for domestic stock funds, more investors are investing in international funds, which is depressing the U.S. dollar even further, The Wall Street Journal reports.

A big factor driving those gains has been a 30% decline in the U.S. dollar in that time. While currency swings are hard to predict, many experts believe the United States' large budget and trade deficits will weigh down the greenback for some time to come.

Through November, more than $61 billion has flowed into these funds this year, according to Lipper, topping the previous record of $49.8 billion in 2000. Of assets in all types of equity funds, 35% is in international funds, up dramatically from 15% in 2003.

"It's clear from the statistics that international funds are becoming the darling of American investors," said Milton Ezrati, senior economic strategist for Lord, Abbett. Even if the performance of an international fund were flat, for example, an investor could take advantage of what Ezrati calls "currency play." With assets in foreign funds invested in a currency other than the U.S. dollar, if that currency is stronger against the U.S. dollar, when those assets are redeemed into a weak dollar, the investor would receive more dollars because each unit of that currency would be converted into more dollars.

According to Morgan Stanley, the Morgan Stanley Capital International Europe, Australasia and Far East Index has averaged a 0.8% gain over the past three years, but if the stocks in those local currencies were converted into dollars, the gain would be 12.4%.

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