American investors are jumping out of U.S. stocks and into foreign equities at a significant pace. This, according to a recent article in Investor's Business Daily.

In December, the article notes, "Shareholders pulled $2.47 billion from domestic equity funds," while international funds "took in $13.12 billion, up 19%" from November's figures.

Are American investors being unpatriotic? Or are there simply better growth opportunities overseas?

Two reasons may help explain the shift in capital:

  • Recent foreign market outperformance.
  • An increasing number of foreign ETFs and ADRs.

Over the past five years, for instance, the iSharesEAFE Index ETF, anchored by BP (NYSE:BP), Nokia (NYSE:NOK), and UBS (NYSE:UBS), outpaced the S&P 500-tracking SPDRs ETF by 18% to 8% per annum. Put in dollar figures, that's a difference of more than $4,000 on a $5,000 investment.

Furthermore, seven of the 10 best-performing large caps in the U.S. markets last year were ADRs. In fact, China Life Insurance (NYSE:LFC) and Research In Motion (NASDAQ:RIMM) outpaced American favorites Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) by a wide margin.

Is it too late to join?
Now, it's possible that some international markets are overvalued because of increased foreign investment. India, for one, comes to mind. But there are still plenty of foreign markets that are undervalued and worth your attention. Taiwan, perhaps?

One route would be to invest in a regional ETF like iSharesMSCI South Korea. These vehicles are great if you think an entire market is undervalued relative to its growth prospects, but this is almost never the case. Certainly there are overvalued companies and undervalued companies in each market and you'd be forced to hold both in an ETF like this.

Instead, you might just have better luck picking undervalued companies in countries that encourage foreign investment (read: not Venezuela). But there are many added factors to consider when looking overseas for investing opportunities -- things like political and economic histories, currency valuations, and regional stability.

Don't have time to research all of that, but still want to harness the power of international investing? Then consider a free 30-day trial to Motley Fool Global Gains, where Fool senior analyst Bill Mann does all the legwork and recommends two new foreign stocks each month.

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Todd Wenning does not own shares of any company mentioned. The Fool has a disclosure policy.