International stock and bond funds are proliferating both in number and in assets managed, according to CDA/Weisenberger, a mutual fund tracking service in Rockville, Md.
And though sales of international funds through banks are difficult to pinpoint, banks are clearly playing a role in making international funds more widely available, observers and participants say.
"Our clients who have created international products have done reasonably well," said Mark Dillon, vice president of Winsbury Co., Columbus, Ohio, a leading distributor and administrator of bank proprietary mutual funds. "Our experience so far has been encouraging, and there's been a fair amount of volume."
Counting bank and nonbank funds, the number of international funds available to U.S. customers has leapt from 119 to 379 during the past five years, CDA/Weisenberger said.
Assets grew from $22.3 billion to $111 billion from December 1988 to September of this year. Assets in international equity funds grew 78%, while international bond funds assets rose 86%.
There were 117 international bond funds through the end of September, with $32 billion in assets, compared with 262 international stock funds, with $79.1 billion in assets, CDA figures show.
"Industrywide, you have an enormous proportion of selling on the international side. Banks are just coming into that," said Avi Nachmany, bank mutual fund analyst with Strategic Insight in New York.
The growth has come during a time of often spotty results. While the U.S. stock market were raging and posting record gains in the past five years - especially in growth stocks traded over the counter - CDA figures show international bond funds averaged 9.68% in the last five years. Stock funds averaged 9.32%.
Interest rates are now rising in the United States and declining in Europe. This creates a better environment for European investors and a less desirable one for the U.S., giving weight to the argument to diversify.
Many financial planners recommend that 5% to 20% of an individual's portfolio be invested overseas to be used as a hedge against exposure in the United States.
Despite the gains, there's a long way to go, said Jamie Corbin, assistant product manager for Marketing One Inc. in Portland, Ore., a third-party sales company that sells through 80 banks. International fund sales are on the rise, but they still represent less than 1% of the company's total sales volume, he said.