3 Best International Mutual Funds to Play the Global Economic Recovery

Why you should look overseas to grow your portfolio.

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U.S. stocks have trounced their foreign counterparts over the course of the current bull market, but the era of American stock market dominance began to wane this year. “For the first time in years, we’re seeing a broad-based global ecnomic recovery,” says Jim Paulsen, chief investment strategist at Leuthold Group. And although the U.S. is in the late stages of the recovery, foreign economies have more ground to make up—a boon for stocks in those countries.

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Paulsen favors stocks from emerging nations over those from overseas developed markets, but he expects both to outpace gains in U.S. stocks for the remainder of the bull market.

For broad inter­national exposure, consider a diversified, low-cost exchange-traded fund. Vanguard Total International Stock (VXUS (opens in new tab), $55), a member of the Kiplinger ETF 20, tracks an index representing the entire market outside the U.S. The portfolio allocates 84% of assets to developed nations, with the rest in emerging markets. It comes with an expense ratio of 0.11%.

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Two mutual funds from the Kiplinger 25, the list of our favorite actively managed funds, offer a more targeted approach. Oakmark International (OAKIX) invests in bargain-priced stocks in de­veloped Europe and Asia. Baron Emerging Markets (BEXFX (opens in new tab)) focuses on large and midsize emerging-markets companies with above-average growth potential and competitive advantages over their peers. Both funds sport five-year annualized returns that place them in the top 5% of similar funds.