Foreign vs. Domestic Large Growth Funds

Chart of the Week for December 22 - 29, 2006

Over the past three years, large capitalization international growth funds have on average produced higher returns than US domestic large cap growth funds, as measured by Morningstar’s category averages. As shown in the above graph, $10,000 invested three years ago and earning the foreign large growth category average return would have grown to over $17,000, compared to under $13,000 for a similar investment that grew at the US large capitalization growth category rate.

One of the important factors contributing to the outperformance of the foreign large growth category has been the currency effect. For example in 2006, the US dollar has fallen approximately 11% against the euro. When the US dollar depreciates relative to a foreign currency, the value of a US investor’s holdings in a foreign security may increase in dollar terms.

Attracted by higher returns, investors worldwide increased international fund investment activity. In the first nine months of 2006 alone, international and global funds received $134 billion compared to $20 billion invested in US stock funds.

While international growth funds have been outperforming in recent years, no one can be certain of what the future holds. Developing and maintaining a long-term investment strategy with a diversified portfolio, which may include some allocation to international investments, has typically served retirement plan investors well.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.