Continued from page 1
World funds tend to be safest foreign stock investments, but only because they typically lean on better-known U.S. stocks. Just examine portfolio carefully to make sure they don’t mimic your U.S. holdings. Funds invested in small- to medium-sized companies are unlikely to duplicate foreign investment component of domestic funds.
Foreign funds, on other hand, invest mostly outside U.S. Whether they are relatively safe or risky depends on countries in which they invest.
Advice: choose a fund with best balance between countries and regions, or be very sure manager has a good record of moving in and out of regions profitably.
Country-specific funds invest in a single country or region. This type of concentration makes them particularly volatile – especially those that invest in emerging markets. If you pick right country at right time, returns can be substantial. Get it wrong and look for your head to be handed to you on a plate. These funds are for most sophisticate investors only.
Emerging-markets funds are most volatile, invested as they are in undeveloped regions subject to political upheaval, currency risk and corruption. These economies, such as Argentina’s in 2002, can collapse; governments can fall or be overthrown. On other hand, these regions have enormous growth potential. Adding a small sprinkling of emerging markets exposure to your portfolio could serve to lessen downturns in U.S. markets – but they are for long-term investors only, those who can wait for fallen markets to recover.
As always, of course, biggest risks carry greatest potential for outstanding rewards; you simply require nerves of steel. The best course is to diversify well and sleep soundly at night.
Written & published by Murray Priestley, Managing Partner of Portofino Asset Management, private investment managers and publishers of the Portofino Report. http://www.portofinoasset.com/