Mutual Fund Specialties: Countries

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Mutual Fund Specialties: Countries

My previous post about Mutual Fund specialties was about the division by industries. Another common approach to specialize mutual funds will be division by geographic positions, they also called Geographic Funds.

There are plenty of funds which specialize in a certain geographic area like Asia, Europe, South America, North America, etc, and also countries. The funds which invest outside your own country will be obviously foreign funds.

Investing into foreign mutual funds has its own advantages and disadvantages. If you notice that one of the country’s economy is raising, like Russia’s, it’s a good thing to invest your assets into some of the high-powered industries in that region. If we take Russia as an example, their oil and gas industries are booming now and bringing up to 30%-50% a year, however, there are some risks associated with some government actions.

It’s also very difficult to see a good profit if the currency of that country is cheaper then yours’; for example, if a British person invests into an American (US) company, his profits will be much less against his currency, then for an American person. So, if you can handle some risks, and looking for high returns, look at some developing, but stable countries like Brazil, China, etc.

A good thing will be to hold some of the foreign mutual funds in your portfolio, thus you diversify your assets across several economies and minimize risks associated with the domestic economy depressions, or similar situations. For example, for those who invest into real estate, a domestic slowdown of the real estate market can be a good reason to discover foreign real estate markets.

Relevant articles:

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This entry was posted on Thursday, July 12th, 2007 and is filed under Fund Basics. 2,487 Views. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Mutual Fund Specialties: Countries”

Pedro says:
Hello!

Informative article however there is one thing I consider to be incorrect:

[…]It�s also very difficult to see a good profit if the currency of that country is cheaper then yours�[…]

That is not true, your profit is affected by foreign exchange risk if the currency in which the fund is denominated weakens aganist your home currency while you have invested in it. If it becomes stronger, or if it does not change, your profit will either raise or remain the same. Please note that does not matter if your currency is stronger or weaker than the fund�s currency.

P

July 13th, 2007 at 3:14 am
Alex says:
I see your point, Pedro. If you plan to keep the gains inside that fund in long-term, it does not matter, however, if you use it to cash out every year to cover your bills, then the weakening position of the foreign currency reduces the amount of case you get after exchanging it into your currency. You also need to pay attention to the rate of the inflation for that currency, cheaper currencies tend to have higher inflation rate.

The reason I mentioned it in this post is that I had similar situation, when I invested into Eastern European energy fund. When I’ve cashed the fund, I’ve got not so good return after exchanging it into US dollars. However, emerging economies are still a good investment, if their growth wins over their inflation rate.

It also depends on the market situation, and how big the difference between two currencies.

July 13th, 2007 at 5:17 am