Are International Mutual Funds Worthy Investment?
International mutual funds and global funds are not interchangeable terms as some investors would have your believe. Global funds include worldwide trading whereas international ones do not include the country of origin, or in this case all mutual funds except American funds. To keep international funds as well as all mutual funds viable, the SEC or Securities and Exchange Commission ruled that MF must invest at least 80% of their capital into compatible shares. In other words, George’s Oil and Gas Fund must invest 80% in oil and/or gas stocks. International mutual funds if labeled as South American Oil and Gas ex. Brazil must invest 80% of stock funds in South American countries except Brazil. This rule is to guarantee that dividend and MF move closer to reality.
International mutual funds are a worthy investment in a global economy where the US dollar is now worth less than some foreign currencies. There are risks; however that can cause havoc to your portfolio. Some investors shy away from investing in foreign stocks due to political instability and markets “cooling” off. Worldwide inflation and global recession makes investing in foreign markets highly undesirable. It is widely thought that emerging markets mutual funds are a good investment since the economies of developing countries are not tied with American or other developed country’s assets.
When investing in foreign bond funds to hedge or reduce the risk of disparate price movements in your package keep both U.S. bonds as well as foreign bonds in your portfolio. When investing in international mutual funds keep in mind foreign currency value relative to the U.S. dollar. Watch political climates that can be a big risk in emerging markets where governments are unstable. When investing in foreign MF it is good to remember that not all markets are the same. In some countries financial markets operate based on relationships rather than rules and regulations and emerging markets do not have the proper incentives to follow rules and regulations. Track inflation and interest rates globally. Inflation is a risk worldwide and as inflation raises bonds and mutual funds lose value. Look to those funds that have been issued recently since their interest rates rise in response to inflation rumors and may be currently at high levels.
The key to finding the best performing mutual funds in an international market is to find a broker who has experience in investing internationally. Find those companies who have actual employees in foreign countries and are familiar with the economies of those countries. Diversify your investment package by concentrating on government bonds and funds in politically stable countries. Emerging markets may offer high potential returns, but these countries carry extreme risk. Limit how much you invest. Invest in those international mutual funds that have long term performance and returns. Be aware of the costs when investing in international markets. Diversified mutual funds in foreign countries will carry high costs in managing, researching and purchasing. If you find foreign MF that are similar in past performance and management, invest in the lower-cost fund to help benefit your returns over the long term. Do keep in mind when investing in foreign mutual funds, the inventory of these funds at U.S. brokerage houses is very slight. You may need to go out of the country to find a good brokerage house that can give you expert advice.