Term Paper: International Mutual Funds

Pages: 12 (5181 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Economics  ·  Buy This Paper

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[. . .] Available at http://www.matthewsfunds.com/whyinvest.cfm

7. Asian Funds. PFPC Distributors, Inc. May 23, 2004. Accessed 21 May, 2004. Available at http://www.matthewsfunds.com/whyinvest.cfm

The description of the entrepreneurship of Asia is considerable, but there is no clear indication as to the proposed area of investment. The area has been talked about a good area, but there are no reasons given why it should be able to yield better results than an investment in United States.

Getting to some other investment experts, who have a clearer idea about the international market; let us first understand that the market has grown rapidly in the last decade. The available funds are of four types - international, global, regional and country. The funds which may be truly called international funds invest only in well-known markets outside the U.S. like Germany, France, Japan, Hong Kong and Australia. These are well diversified and widely held. The global funds contain mixtures of U.S. And international stocks and they continuously chase the best performing market, and as a result, they have many U.S. stocks and are often quite similar in performances to a U.S. fund. Usually, as high as 75% of their assets, are invested in U.S. corporations. The regional funds concentrate in geographic areas like Latin America, Pacific Rim and Europe. The concentration of these firms is in small countries and emerging markets.

There are also country funds which concentrate only on one country, and this may help investors through strong and emerging economies. These are risky as they concentrate only one market. International funds are useful when it is felt that the U.S. market is not doing so well. There is also the factor that emerging markets in the foreign countries are expected to perform better than the U.S. market, whereas, the higher return foreign markets maybe in the same state as the U.S. market and may not perform very differently. At the same time, there may be high fluctuations as they may suffer from political troubles, and the returns received from those countries may be lower if the value of their currency drops against the dollar. The other difficulty is in selling out the investments as they have lower volumes than the U.S. And this may lead to a situation where the best prices may not be received for the investments. There is also the question of dealing with a foreign market, and this may lead to higher operating expenses, transaction fees and sales costs, and these go out of the profits of the investors. Still, they provide diversification and probably are the best method for getting the recommended 20% of the investment in foreign shares. The effort should be made however, after the U.S. portfolio of the investor as stable. These international investments have to be kept in the long-term due to the risks that are involved. 8

The important aspect of international funds is that they give the small investors an opportunity to invest in shares all over the world, and that would be very difficult or expensive to buy on their own efforts. It also provides a good opportunity for diversification. But just putting down the money for the overseas fund does not ensure a suitable amount of diversity, and the important thing for the investor is to find out the type of stocks that the fund has. The stocks may be high speed growth technology stocks, or on small cap stocks or even usual blue chip multinational stocks. 9 The choice for an international fund has to be made in a manner similar to the choice of other mutual funds as described earlier. The process is to collect a lot of information and most of this is available in the prospectus of the fund. (Selecting a fund)

8. Stock quest. Accessed 21 May, 2004. Available at http://investsmart.coe.uga.edu/C001759/guide/mutual4.htm

9. Schurr, Stephen. International Funds. August 16, 2000. Accessed 21 May, 2004. Available at http://www.thestreet.com/basics/gettingstarted/995887.html

Look at the goals, stocks, previous performance, fees, etc. The ideal fund should have the characteristics of consistency, bearable risk, low expenses, manageable asset size, and tax efficiency. Consistency is the knowledge that the fund has regularly made profits in the past, as that is what you want it to do in the future. The investor should be able to bear the risk that is associated with the fund, and one should not get into a fund that is too risky for the person. This can be found by looking at the worst year for the fund in the last 10 years, and one should be willing to loose that much in a bad year. The other item to pay attention to is the fees and this normally ranges between 1.2% and 1.9%, and one should target funds which have small expense ratios. Some funds have doubled in size over one year or so, and one should not invest immediately in those funds, as this high growth can cause problems to the manager with extra cash, and make him get into hasty decisions on investment. 10

The last point is analyzed by selected magazines and newspapers for the high tax efficiency that is had by some funds. The final question is to ensure that the mutual fund meets the financial goals of the individual and has remained in the high performance group of its category for the last five years. 11 It is wrong to think that all international funds do well, and that the definition given earlier of international funds is strictly observed. One of the funds is called William Blair International Growth is a fund that lost some 14% in the previous year, and was still in the list of top 11% of international funds. This fund keeps going into markets like Indonesia and South Africa, where they have some 19% of the fund's assets.

10. Selecting a fund. Accessed 21 May, 2004. Available at http://investsmart.coe.uga.edu/C001759/guide/mutual9.htm

11. Selecting a fund. Accessed 21 May, 2004. Available at http://investsmart.coe.uga.edu/C001759/guide/mutual9.htm

In addition there have been investments in Taiwan Semiconductor Manufacturing and Samsung, with the expectation that the investment in consumer electronics would improve the business for both these companies. This was expected to benefit from the demand in U.S., and at the same time there are other companies like AXP International which are doing very badly. 12 There has been a lot of growth of new money moving into international and global mutual funds and the rise was as high as 45% during 1999 from the previous year. The flow was the highest during the last six months of the year, and even then the domestic market did not seem to be doing so well though there were a lot of companies which reached their peaks.

The mutual fund lobby comes out with a journal called the Investment Company Institute and that said that as much as $1.4 billion of new money went into the international mutual funds in August 199, and that figure has been continuously climbing from that time. In December 1999, the data is available that as much as $7.4 billion went into the international funds. That figure represents the entire growth for the full year of 1998. When compared to the money that is being invested into the domestic mutual funds, this money is still small, and even the record figure of December 1999, was still half of the total flow into the domestic market. The reason for the growth is probably that the countries which seem attractive to investors are now seeing a lot of positive growth, except probably Japan at that time. 13

12. The New Superstar Funds: International Funds. Accessed 21 May, 2004. Available at http://www.smartmoney.com/magportfolios/funds/picks/index.cfm?story=pickfour

13. Kurapka, David. Long-Term Gains Lie Ahead for International Fund Investors.

February 23, 2000. Accessed 21 May, 2004. Available at http://www.thestreet.com/int/tradewinds/888212.html

Even in Japan, the market was climbing, and the average index for the Nikkei had climbed by as much as 40%. There are a number of the international funds which are in the top 10 of the funds in United States. The stock funds of Japan are rated only second to Pacific/Asia without Japan. There are also funds for diversified markets and Latin America, which are doing well. Still the investor who is looking for a profit in the short-term should not be in international funds. The growth in the international market still looks to be very good and the reason seems to be the growth in technology and e-commerce. These two have already had a reasonable growth in United States, but they are still in the beginning stages in the rest of the world. That is true even for the developed countries of Japan and the European nations. The usage of these techniques there are still small when compared to U.S.. One simple way of thinking is to think of the rest of the world being in the state that U.S. was in around 1993, and thinking of the rest of the world being there today. 14

The fundamental reason for investing in international funds is that… [END OF PREVIEW]

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