Small investors, seeking to profit from the falling dollar, this year have poured a record $5.5 billion into mutual funds that hold foreign stocks and bonds, according to data gathered for Money magazine's Small Investor Index.
Overall the week before last, the Index, which tracks the average individual's investment holdings, fell $299. That brought the value of the typical portfolio to $41,934. Stocks dropped $331, while bonds gained $8.Since March, the dollar has slid nearly 8 percent against J.P. Morgan's index of 15 foreign currencies. This has benefited shareholders of global and international funds because foreign securities tend to rise in value for U.S. investors when the dollar declines.
More recently, higher oil prices have squashed most foreign equity markets as well as those in the United States. In the past seven weeks, foreign stock funds have lost around 14 percent, while bond funds gained 1.3 percent. As a result, small investors have been favoring foreign bonds over stocks. For instance, the Scudder International Fund, an equity fund, saw net redemptions of $41 million in August, while Scudder's international bond fund picked up a net $16 million.
"A sluggish world economy will continue to hurt foreign stocks, but it will also allow interest rates to fall, helping bonds," said David Resler, chief economist at Nomura Securities in New York City.