Unlike mutual funds focussing exclusively on international markets, global funds do not exclude the investor’s home country from the investment portfolio. This provides an opportunity for wider diversification, since the portfolio’s risk factor is not dependent on domestic factors alone. Again, foreign markets may provide the opportunity for higher returns. However, the prospect of other risks arising from currency fluctuations and political risk factors from foreign markets remain.
The Domestic Scenario
Equity markets continue to be ebullient and have remained largely unaffected by a slow economic recovery. However, the recent partial government shutdown and a resultant impasse over the debt ceiling have shown how fragile the situation remains. The Federal Reserve is of the view that economic data is not strong enough for it to proceed with the proposed tapering of its bond buying programme.
Emerging Markets Slow Down
Developing economies have also shown weakness this year on the back of weak demand from mature markets. This is particularly true of countries such as China which follow an export oriented model of growth.
Experts view the situation as an attempt by that nation to reorient its economic model towards one which will increasingly cater to indigenous demand. However, ultimately this has led to downward revisions to growth projections. This is true of other economies such as India which have also been affected by global factors
Resurgence in Europe
The Eurocoin Indicator has increased for the month of October to 0.2% from 0.12% in September. This reading of the index, which is compiled jointly by the Bank of Italy and the London-based Center for Economic Policy Research, indicates that the economy has gained strength at the beginning of the fourth quarter, marking its second consecutive monthly increase.
The increase has come on the back of higher share prices and an increase in foreign trade and industrial production. This clearly shows that the Eurozone’s economy is gaining momentum which may be sustained over time.
It is clear that diversifying across nations might be an optimal strategy given the current situation. Below we are presenting three mutual funds, each of which invests globally and have high returns, as well as the best possible Zacks Rank.
Mutual Fund Picks
AllianzGI Global Small-Cap A (RGSAX - Free Report)
Launched in February 2002, this fund has total assets of $ 130.51 million. It invests heavily in companies whose size is similar to those which are part of the MSCI World Small-Cap Index. The fund invests in a minimum of eight countries which may include the U.S. Most of its foreign investments are made in companies located in Western Europe and Japan. The fund has a year-to-date return of 34.43%.
The fund holds 195 assets and its top 10 holdings account for 9.09% of its investments. The asset it is most invested in is Yoox Spa (SPWR). which makes up 1.10% of its assets. The next two, Nationstar Mortgage Holdings Inc (NSM) and Lions Gate Entertainment Corporation (LGF), together make up 1.88% of its assets. The fund has a three year annualised return of 19.78% and has a Zacks Rank #1(Strong Buy).
American Funds New Economy A (ANEFX - Free Report)
This is the largest of our choices with total assets of $10.40 billion and was launched in December 1983. It focusses on investing in common stocks of growth oriented companies. The fund looks to invest in companies which can utilise innovation and new technology to cater to the needs of the global economy. This fund has a year-to-date return of 34.82%.
The fund holds 192 assets and its top 10 holdings account for 21.13% of its investments. The asset it is most invested in is Galaxy Entertainment Group Ltd. which makes up 3.44% of its assets. The next two, Gilead Sciences, Inc. (GILD) and Netflix, Inc. (NFLX) together make up 6.19% of its assets. The fund has a three year annualised return of 17.83% and has a Zacks Rank #1(Strong Buy).
Guinness Atkinson Global Innovators (IWIRX - Free Report)
Launched in December 1998, this is the smallest of the funds with total assets of $44.36 million. The fund focusses on investing in companies which are poised to benefit from improvements in communication, technology and new management practices. A minimum of 40% of its assets are utilised to purchase global securities. This fund has a year-to-date return of 34.84%.
The fund holds 28 assets and is concentrated around its top 10 holdings, which account for 42.41% of its investments. The asset it is most invested in is Best Buy Co., Inc. (BBY) which makes up 5.19% of its assets. The next two, TD Ameritrade Holding Corp. TD Ameritrade Holding Corp. (AMTD) and State Street Corporation (STT), together make up 8.62% of its assets. The fund has a three year annualised return of 16.92% and has a Zacks Rank #1(Strong Buy).
Diversifying across the global comes with its own sets of opportunities and challenges. However, given the current economic situation this may be a god strategy. This is why these three funds would make excellent additions to your portfolio.