The Basics Of Global Mutual Funds

Understanding the differences in the various investment opportunities on the market can be rather difficult. In this article the primary focus is the oft-misunderstood global mutual fund. Often times, global mutual funds are confused with international mutual funds. While international funds are by far the more popular of the two, global mutual funds are experiencing a surge of popularity.

With a global mutual fund, you can invest in stocks (and sometimes bonds as well) world-wide. Most global funds invest their assets in the American market as well as the developed markets of Asia and Europe in addition to a host of emerging markets. International funds, in contrast, invest only in non-U.S. Securities. Since very few people would choose not to invest in the largest economy in the world, a global fund such as the Vanguard Global stock Index Fund is your best bet for one-fund global diversification.

Foreign markets is definitely an area where it pays to use professional management.  While it’s possible for a dedicated individual to assemble a diversified domestic portfolio (with a lot of work, mind you), that generally isn’t the case in many foreign markets.  This is especially true of emerging market economies, since their stock markets usually don’t have the same transparency and reporting standards as American markets specifically and industrialized markets generally.  If you want global stock market exposure (and practically all experts agree that you should), you should absolutely not try to go it alone.

What Makes A Good Global Mutual Fund?

Most good global mutual funds will have the following characteristics in common:

• Broad Geographic Coverage – A global fund that invests mostly in Asia or South America, for instance, is ultra-vulnerable to regional economic developments.  The best global funds will spread itself around, likely coming close to mirroring the market caps of the overall global stock market.  That is, if North America accounts for 40% of the world’s stock market capitalization, most good global funds will allocate approximately 40% of its assets to North America, give or take.
• Low Costs – Low costs apply to all mutual fund investments.  All else equal, the mutual fund with the lowest expense ratio has a better-than-even chance to outperform its peers.
• Low Portfolio Turnover – Next to the expense ratio, portfolio turnover is one of the most important mutual fund statistics.  You can find mutual fund portfolio and expense ratio information from services such as Morningstar. Higher portfolio turnover means higher fund transaction costs and higher taxes for you.