U.S. Stock Funds Are Suddenly Laggards
According to the latest mutual-fund returns, the U.S. has been surpassed by the rest of the world, and portfolio managers say that trend could continue.</br></br>International-stock mutual funds are up an average 17% this year through Friday. Despite the recent record-shattering move by the Nasdaq Composite Index, the average U.S. diversified stock fund lags behind its foreign counterpart with a 13% return through Friday, according to fund-tracker Lipper Inc.</br></br>There could be more of the same in the coming months. "I think international markets will continue to outperform" the U.S. stock market, but perhaps not the tech-heavy Nasdaq index, said Irene Cheng, lead manager of Scudder International Fund.</br></br>Ms. Cheng's assertion stems from her belief Japan is "dead serious" about turning around its economy. David Lui, who manages Strong International Stock Fund, agrees. A number of secular trends in Japan bode well for a lasting economic recovery, he says. Companies in Japan are restructuring, instituting layoffs and selling unprofitable divisions, moves they hadn't undertaken before. In addition, Mr. Lui says, "individual investors in Japan are tiptoeing back into the market after they got so badly burned in the early 1990s, and that's a very bullish signal."</br></br>A year ago, Japan's markets were starting to dig out from a devastating financial crisis. Meanwhile, European markets were thriving, in part because of optimism over the European Union's unified economy and the then-coming euro monetary unit. This year, things have reversed; Japan has performed well, while Europe seems to have been a victim of its own success. But don't count the Continent out yet, managers say, there is room for improvement.