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Lofty commodity prices and dwindling consumer spending numbers have caused investors worldwide to shy away from U.S. markets over the last few months. And it doesn't look like there is reprieve in sight unfortunately. So, as the U.S. economy sputters, why not consider expanding your horizons and increasing your exposure to markets abroad? Let's examine three international mutual funds that can boost a sagging portfolio.

T. Rowe Price International Growth & Income Fund
T. Rowe Price's Int Grw & Inc fund has been around since December 1998. The fund has generated an average annual total return of 8.71% in 2007, which is almost identical to the 8.70% return of its benchmark, the Lipper International Multi-Cap Value Funds Average. However, it's not so much its past performance that I'm focused on; it's the fund's future potential.

The fund's objective is very simply to grow capital and generate income by investing in mature dividend paying stocks outside of the U.S. As of December 31, 2007 more than 96% of its holdings were in foreign stocks. The balance was divided up among cash and preferred issues. What I really find interesting is how the company spreads its exposure. A little more than 64% of its assets were invested in tried-and-true European economies including the U.K., France and Germany.

Its single largest country exposure is Japan at 17.1% of assets. I like this because Japan's economy and stock market have been in the doldrums for the last couple of years. And frankly, it appears that nobody is expecting too much from Japan. I think this is an opportunity. After all, the unemployment rate remains relatively low at approximately 4% according to 2007 estimates by the CIA world Factbook, and it continues to remain an economic force among the economies in Asia. I also suspect that as the economies of China and Vietnam expand, Japan's trade will increase as well.

There is a 2% redemption fee if the shares are held 90 days or less. However, after 90 days there is none. The expense ratio is 0.88% which is reasonable. There are no front-end or back-end loads. Finally, the minimum needed to open an account is $2,500. (To learn about load fees and expense ratios, check out Mutual Funds: The Costs and The Lowdown On No-Load Mutual Funds.)

T. Rowe Price International Bond Fund (RPIBX)
As its name suggests, T. Rowe Price's International Bond Fund's objective is to generate income by investing in bonds outside the U.S. Since inception in 1986, the fund has generated a healthy average annual return of 7.54%, according to the website.

What's particularly interesting to me is that the fund has been able to generate a fairly healthy return without taking on too much risk. For example, as of December 31, 2007, more than 88% of its holdings were investment grade rated 'A' or better bonds. Another thing I like is that the fund takes a long-term, patient approach to investing. As of January 31, 2008, 40.8% of its assets had maturities of between five and 10 years, while another 17.7% had maturities of more than 10 years. (For help selecting a bond fund, check out Evaluating Bond Funds: Keeping It Simple.)

The expense ratio is 0.84%, and there is a 2% redemption fee if the shares are held 90 days or less. There is also no front end or back-end load. The minimum to open an account is $2,500.

Fidelity Europe Capital Appreciation Fund (FECAX)
This fund's objective is simple: it seeks long-term capital appreciation by investing the bulk of its assets in large European-based companies such as Nestlé SA, Royal Dutch Shell and Siemens.

Over the last 10 years its average annual total return was 9.22% whereas its benchmark, the MSCI Europe Index, returned just 7.51% during that time. What impresses me most is the way it spreads its risk. The fund places its eggs in stable baskets, including the U.K. at 24.3%, France at 14.6% and Germany at 14.5%. In terms of currency diversification, another interesting thing is that more than 60% of its holdings were tied to the euro and the British pound. Given the U.S. dollar's woes, that's a good thing.

A word of caution: there may be some overlap with the T. Rowe Price International Growth & Income Fund particularly with regard to its European holdings. However, unlike the T. Rowe fund, it doesn't maintain significant exposure to Japan.

The expense ratio as of December 31, 2007 was 1.05%. There is a 1% fee if an individual trades out of the fund within a 30 day period. Like the other two funds, there are no front-end or back-end loads, and the minimum initial investment is $2,500.

Bottom Line
International investing should be considered for diversification purposes, but prior to taking on any new investment, careful thought should be given. That said, given the woes in the domestic economy and stock market some investors should at least consider expanding their horizons. The three international funds listed above could be a terrific start.

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