Japan stocks beat U.S. as funds soar 10.7% in Q1

If you sent your money abroad in the first quarter, you got some handsome returns — and the further you sent it, the better. The Standard & Poor’s 500 stock index rose 0.6% in the first quarter, including reinvested dividends. And the average large-company blend fund bumped up 0.8%. It was a decent year in the U.S., but nothing to brag about.635636572610664700-EPA-FILE-GERMANY-ECONOMY-EUROPEAN-CENTRAL-BANK-RATES

Foreign markets, however, finally awoke from their slumber. The past decade, the MSCI Europe, Australasia and Far East index has gained an average 5% a year, vs. 14.2% for the S&P 500. The biggest surprise: Funds that invest in Japan’s stock market soared an average 10.7% in the first quarter, according to Morningstar, the Chicago fund trackers. The country’s stock has been a global laggard since the Nikkei average peaked at 39,000 in 1989. The Nikkei closed the quarter at 19,207.

But Japan’s stock market has been pushed higher this year by rock-bottom interest rates, a falling yen — which makes exports more attractive in the U.S. — and government stimulus programs. Unfortunately for U.S. investors, Japan’s market has been as popular as Mothra the past two decades: The 39 funds that invest in Japan have just $4.5 billion in assets. The only international fund category smaller than Japanese funds came in second place. Funds that invest in India, which have just $2.2 billion in assets, jumped 8%. India’s stocks have ramped up on hopes that its new, business-friendly government will push profits higher.

Diversified overseas fund managers got a tailwind from Japan and India as well as Europe, whose stock markets have been surging as the European Central Bank has pushed rates into the sub-basement: The average foreign large-blend fund gained 5.2% in the first quarter, Morningstar says. In the U.S., health care funds produced rosy gains, jumping an average 10.1%. Health care stocks have been pushed higher by speculation in biotech, and a feverish rash of mergers and acquisition activity. The worst U.S. sector: Energy. Funds that invest energy stocks fell an average 0.7%, thanks to the plunge in oil prices. Equity limited partnership funds, popular because of their high dividend yields, fell 1.4%.

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