Read it on Salon
Whatever happened to last year's breakout stars?
NEW YORK (AP) — Willkommen, investors. Domo arigato for the cash.
Investors are piling into mutual funds that invest outside of the United States. The lure of Japan’s soaring market, Europe’s nascent economic recovery and the potential for stronger economic growth in developing economies have led investors to pour a net $91 billion into world stock mutual funds through the first eight months of the year. That’s nearly six times what they’ve put into domestic stock mutual funds, according to the most recent data from the Investment Company Institute.
It’s a continuation of a trend that’s been going for years, both by average investors and by mutual fund providers, in the search for a more diversified portfolio. Stocks from other countries can zig when U.S. markets zag, offering a smoother ride for investors. That’s why fund companies have bulked up on foreign stocks in their target-date retirement funds, which are built to take care of investment decisions for savers. The average target-date fund designed for those aiming to retire in 2040 had 36 percent of its stock portfolio in foreign companies at the end of 2012, up from 24 percent at the end of 2005, according to Morningstar.
The split in interest has become even more pronounced in recent weeks: Investors added a net $924 million to world stock funds during the two weeks ended Oct. 2. Over the same time, they turned their backs on domestic stock funds and pulled out a net $8 billion.
One attraction has been the bigger dividend yields that foreign stocks offer. Stocks from developed markets around the world carried a dividend yield of 3.1 percent at the end of September, according to the MSCI EAFE index. Stocks from Brazil, China and other developing economies in the MSCI Emerging Markets index had a yield of 2.7 percent. That compared with a 2.1 percent yield for the Standard & Poor’s 500 index and a 2.6 yield for a 10-year Treasury note.
Investors who bet on Japanese stocks have done well this year. A big push of stimulus by the Bank of Japan has invigorated the country’s market, and the country’s Nikkei 225 index has surged 37 percent this year.
But even better buys are available in Europe, where stocks have lagged the U.S. market since the recession, says Phil Camporeale, client portfolio manager at J.P. Morgan. He helps run the $7.9 billion JPMorgan Income Builder fund (JNBAX), which invests in stocks and bonds from around the world.
The fund keeps about 17 percent of its assets in Europe, which is close to the highest it’s been since the fund’s inception in 2007. “They’re where the U.S. was three years ago,” Camporeale says: The European Central Bank has shown that it will be the lender of last resort and will support the economy, which recently had its first quarter of growth in its last seven.
Stocks across Europe and other countries are also trading at lower prices relative to their book values than their U.S. counterparts, says Bill Nasgovitz, one of the managers of the Heartland International Value fund (HINVX). That can provide investors with a stronger safety net in case volatility hits the market again.
Investors who have focused on emerging-market stock mutual funds struggled earlier in the summer. Worries about slowing economic growth and a possible pullback in stimulus by the Federal Reserve dragged down markets from Brazil to China. But that also put many emerging-market stocks on sale, proponents say.
To be sure, investing in international stock mutual funds carries risks, of which investors should be mindful. They include:
— CURRENCY CHANGES
Swings in foreign currency values can hurt returns for investors after translating them back into dollars. Indonesia’s stock index is up 4 percent this year in terms of the Indonesian rupiah, for example. But in U.S. dollar terms, it has dropped nearly 13 percent.
Currency swings can also slow an otherwise quick ride for markets. Japanese stocks have shot up 37 percent this year, roughly double the 18 percent gain of the S&P 500. But much of the gain has been due to the yen’s falling value against the dollar. Investors expect the devaluation of the yen to help Japanese exporters by inflating the value of their overseas sales. After adjusting for the currency changes, the Nikkei 225 is up a more modest 20 percent in U.S. dollar terms.
Some mutual funds try to mitigate effects of currency swings by hedging their portfolios. They do this by entering complicated contracts, but funds incur costs to do so, and there’s still the risk that they’ve guessed wrong on the direction of currencies.
Foreign stocks can have more severe swings than U.S. stocks, particularly those from less developed economies. Brazil’s Bovespa index plunged 11 percent in June amid worries about economic growth and protests in the streets, for example. The S&P 500 fell a more modest 2 percent during the same month. Indonesia’s stock index dropped 9 percent in August, compared with the S&P 500′s 3 percent loss.
Companies in other countries may use different accounting standards than U.S. companies, and investors fear governments in some countries could expropriate private assets.
Fund managers closely follow elections and other political changes that could quickly affect investors. “You can have somebody win an election and create better or worse tax environments for dividends for these companies,” JPMorgan’s Camporeale says.
The star of “Beasts of the Southern Wild” charmed practically everyone at the Oscars, where she was the youngest best actress nominee ever; she went on to film a remake of “Annie” opposite Jamie Foxx and Cameron Diaz.
Carly Rae Jepsen
Jepsen, who had 2012’s song of the summer with “Call Me Maybe,” released the fifth and final single from her debut album in January 2013. She toured the U.S. in mid-2013 -- just as Daft Punk and Robin Thicke battled to succeed her as icons of the summer.
Honey Boo Boo
2012’s biggest reality star, the young pageant contestant Alana Thompson, had a quieter time this year, with a second season whose ratings were strong but whose buzz was a bit muted. America was, by now, accustomed to young Thompson, and outraged or scandalized reactions were reserved for other TLC programming, like “The Man With the 132-Pound Scrotum.”
Ocean missed out on the top Grammys for which he was nominated in early 2013; he bounced back quickly with featured appearances on albums by Kanye West, Jay Z and Beyoncé, and is at work on a new album. Things are looking up!
The “21 Jump Street” and “Magic Mike” star had a marginally less charmed 2013, with “White House Down” failing to connect with moviegoers and “Foxcatcher” delayed until next year. It may get worse before it gets better: His big 2014 sci-fi flick, “Jupiter Ascending,” looks … well, a little weird!
With their third album in 21 months hitting No. 1 immediately upon its fall 2013 release, the boy band that broke into America in 2012 would seem to be here to stay for a while. Still, they looked a bit nervous in their reaction shots during the Video Music Awards’ ‘N Sync reunion; maybe not this year, maybe not next, but eventually, the Justin of One Direction is going to break out. For now, though, things look good!
Lana Del Rey
The famously uncomfortable “Saturday Night Live” musical guest overcame endless mockery from 2012 to land her first top-10 hit in the summer of 2013 -- a remix of a year-old song, “Summertime Sadness.” As the co-writer of “Young and Beautiful,” the love theme from “The Great Gatsby,” Del Rey is such a front-runner for the best original song Oscar (last won by Adele) that there has been a direct-mail campaign to academy voters against her. The song was also played at the most romantic event of the year: Kanye West’s stadium marriage proposal to Kim Kardashian.
Wilson, who charmed fans of 2012’s “Pitch Perfect,” had a rockier 2013, with her sitcom “Super Fun Night” struggling creatively and in the ratings. Her next planned movies are both sequels, to “Kung Fu Panda” and -- hoping lightning will strike twice -- to “Pitch Perfect.”
Another 2012 music icon, Gotye won the record of the year trophy at the 2013 Grammys for “Somebody That I Used to Know.” He released no new singles in 2013, and has told the press he has been struggling to complete new material. Good luck, Gotye!
The golden boy of the 2012 Olympics, without feats of aquatic derring-do to distract the public this year, saw his always-tenuous persona completely shift from “amiable jock” into “utter dolt” with his E! reality series. Worst of all, the series was canceled.
In 2012, the young actress -- best known for her role in the indie “Winter’s Bone” and a supporting part in the “X-Men” franchise -- had marquee roles in the first “Hunger Games” film and in David O. Russell’s comedy “Silver Linings Playbook.” In 2013, she played to her strengths: After winning an Oscar, she starred in the second “Hunger Games” movie, on whose publicity tour she managed to charm everyone in America, and had another role in a David O. Russell comedy, “American Hustle,” for which she might just win ANOTHER Oscar. By 2014, she may end up running a major studio, or serving as president.
The breakout bikini model of 2012 made a repeat appearance on the cover of the Sports Illustrated swimsuit issue -- and got to do high-fashion spreads in Elle, Vogue and Vanity Fair. She was cast in a Cameron Diaz comedy, too. Some types of appeal are eternal!
E. L. James
The “50 Shades” novelist now gets to help share some input into a movie adaptation set for release in 2015. She probably never needs to work again! Isn’t that great? Isn’t that … just … great?
The “Gangnam Style” phenom performed at New Year’s 2013, but will spend New Year’s 2014 flipping channels to find his pistachio ad, his goofy antics having been outdone in the past year by “The Fox” singers Ylvis. Nothing meme can stay.
Read it on Salon