Diversification through foreign funds

You can choose from many types of foreign funds to achieve the type of diversification, as well as professional management, that you want. Foreign fund managers are veterans in investing overseas and are prepared to handle the administrative problems that you, as an individual investor, don’t have the time or expertise to deal with. Keep in mind that these managers can’t guarantee you supernormal returns, but they can assist you in avoiding investing blunders or costly mistakes.

Foreign mutual funds, like domestic mutual funds, can be either closed-end or open-end funds, as well as load or no-load. For information about the limitations and regulations surrounding the different types of funds, see Article 6. Keep in mind that like open-end funds, the portfolios of international closed-end mutual funds can be equities, bonds, convertibles, or any combination of these securities. The holdings of the closed-end mutual funds can be geared toward income, capital gains, or a combination of these goals. For example, Korea Fund specializes in the stocks of Korean companies. In contrast, ASA Limited, another international closed-end mutual fund, specializes in the stocks of South African companies involved in gold mining. Over the years, the mutual fund industry has made investing in foreign funds easy for American investors by establishing funds whose policies mandate investing in the five specific areas that are listed below. Additionally, mutual fund companies may select foreign companies that are growing quickly or are value stocks, which money managers hope will rebound.

Regional funds focus on a certain geographic area. Frequently, these areas are Europe, Latin America, and the Pacific Basin. The prices of these funds tend to be more volatile than funds that cover a broader area and are more diversified.

Single-country funds are limited to just one country. The fund may include stocks, bonds, and other types of investments. Because of their narrow focus, these funds tend to be risky.

Emerging-market funds invest in countries that are moving from an agricultural to an industrial economy or from a government-controlled economy to a free enterprise economy. These funds frequently offer more risk than funds from developed countries.

Global funds are often a mix of U.S. and foreign equities and are usually geared toward long-term growth.

International funds concentrate on equities that are outside the United States and don’t include any domestic securities. Global funds invest in companies wherever they’re located, including the United States. International funds focus solely on companies outside the United States. If you don’t have lots of U.S. investments, a global fund may be the way to go. On the other hand, if you already have many U.S. stocks or mutual funds, you may discover that an international fund better meets your requirements for diversification.