Maximizing returns with international mutual funds

Maximizing returns with international mutual funds -
9 min read
Lewis Edmonds -

Written by Lewis Edmonds

Introduction to International Investing

Investment opportunities are not limited by geographical boundaries. As an investor, you have the potential to access global markets and explore a wide range of investment opportunities beyond the UK. This is the essence of international investing.

Why Consider International Investing

International investing allows you to broaden your investment horizon. With access to a wider pool of companies and industries across various economies, you're not limited to the performance of the UK market. By investing internationally, you can tap into the growth potential of emerging markets, global trends, and industries not prevalent in the UK. It also provides a chance to diversify your portfolio geographically, potentially reducing risk and enhancing returns.

International investing isn't just about buying foreign stocks. You can explore other asset classes and investment vehicles such as international ETFs, global bond market investments, or international mutual funds. Each offers unique opportunities and challenges, and it's essential to understand these before making investment decisions.

Risks and Rewards of International Investing

Like all investment strategies, international investing comes with its own set of risks and rewards. On the reward side, international investing offers significant growth potential. Emerging economies, for instance, are often characterized by faster economic growth compared to developed markets. By investing in emerging economies, you're potentially capitalizing on this growth.

International investing also offers the benefit of diversification. By spreading your investments across different countries and markets, you can mitigate the risk associated with dependence on a single economy. Diversification, however, doesn't guarantee profits or protect against losses.

The risks of international investing are primarily associated with economic and political instability, differences in market regulation, and currency risk. Currency risk arises because foreign investments are typically denominated in foreign currencies. When the pound weakens against the foreign currency, your investment value increases and vice versa.

Understanding these risks and rewards can help you make informed decisions about whether and how to include international investments in your portfolio. It's also crucial to consider your investment goals, risk tolerance, and time horizon when investing internationally. For more insights on international investing, peruse our resources on international investing strategies.

Understanding International Mutual Funds

As you delve deeper into the realm of international investing, it's crucial to understand what international mutual funds are and how they operate. This knowledge enhances your investment decisions and helps you take advantage of investment opportunities worldwide.

What are International Mutual Funds

International mutual funds are investment vehicles that pool money from various investors to purchase securities in companies located outside of the investor's home country. In other words, if you're based in the UK and you invest in an international mutual fund, your money will be used to buy shares in companies located in regions around the world, excluding the UK.

These funds provide an opportunity for investors to diversify their portfolios beyond domestic markets and tap into the growth potential of foreign economies. They can focus on a particular country, a group of countries, or spread investments across several countries. They can include investments across various sectors and market capitalisation levels.

To understand these concepts better, you might want to read our articles on investing in foreign stocks and diversifying internationally.

How International Mutual Funds Work

The mechanics of international mutual funds are quite similar to those of domestic mutual funds. A fund manager, or a team of managers, oversees the fund and makes investment decisions based on research and analysis. The aim is to achieve the fund's objectives, which could be growth, income, or a combination of both.

However, investing in international markets brings additional challenges, such as managing currency risk and understanding foreign economies and regulations. It requires a global perspective and comprehensive research. Hence, the fund managers of international mutual funds need to have a deep understanding of global market trends and the nuances of investing in different countries.

When you invest in an international mutual fund, you buy shares or units of the fund. The price of each share (also known as the net asset value or NAV) is calculated at the end of each trading day based on the total value of the fund's assets minus its liabilities, divided by the number of shares outstanding. The NAV fluctuates daily based on the performance of the securities in the fund's portfolio.

The returns from international mutual funds come in the form of capital gains (if the NAV increases in value) and income (from dividends and interest earned by the securities in the fund's portfolio). These returns are either reinvested back into the fund or distributed to investors.

To get a better understanding of how mutual funds work, including the risks and benefits, you might want to read our insightful article on investing in international index funds.

Benefits of Investing in International Mutual Funds

Investing in international mutual funds can provide a wealth of benefits to your financial portfolio. Here, we delve into three key advantages: diversification, a potential for high returns, and access to emerging markets.


One of the main advantages of investing in international mutual funds is the opportunity for diversification. By investing in a variety of markets and economies around the world, you can spread your risk and potentially improve your overall returns.

Diversification aims to reduce the impact of any single investment's poor performance on the overall portfolio. Investing in international mutual funds allows you to access different economies and sectors that may perform well when others are struggling. This strategy can provide a level of protection against volatility in your local market. For more on this, explore our guide on diversifying internationally.

Potential for High Returns

International mutual funds often offer the potential for high returns. While every investment comes with a degree of risk, the potential for higher returns may be greater in international markets, particularly in emerging economies that are experiencing rapid growth.

Investing in these markets can offer exciting potential for growth, as these economies often expand at a faster rate than more developed markets. However, these investments can also be riskier, so it's important to do your research and consider your risk tolerance before investing. Our emerging markets investing article provides more insights on this topic.

Access to Emerging Markets

Investing in international mutual funds can provide access to emerging markets that you may not be able to invest in directly. These markets, which include countries such as China, India, and Brazil, offer a wealth of investment opportunities.

Investing in these markets can potentially provide high returns, particularly if you invest in sectors or companies that are experiencing rapid growth. However, as with all investments, it's important to do your research and understand the risks involved. For more information, check out our article on investing in emerging economies.

By understanding the benefits of investing in international mutual funds, you can make informed decisions about which investments are right for your portfolio. Remember, diversification, high return potential, and access to emerging markets are just a few of the potential benefits. Always keep your investment goals and risk tolerance in mind when making investment decisions.

Risks of Investing in International Mutual Funds

While international mutual funds can offer exciting investment opportunities, they also come with their own set of risks. Before you dive into global investing, it's essential to understand these risks and how they might impact your portfolio.

Currency Risk

Currency risk, also known as exchange rate risk, is a significant risk when investing in international mutual funds. This risk arises from the fluctuations in the value of the currency in which the investments are denominated.

If the currency of the country where you have invested depreciates against your home currency, the value of your investment may decrease, even if the underlying assets perform well. For example, if you are a UK investor and you invest in a fund that holds assets in US dollars, and the US dollar weakens against the pound, your investment's value in pounds could decrease.

Understanding currency risk is vital, especially if you are considering investing in foreign currencies or assets denominated in foreign currencies.

Political and Economic Instability

Investing in international funds exposes you to the political and economic conditions of other countries. Political instability, changes in government policies, economic downturns, or even geopolitical tensions can significantly impact the performance of your investments.

Emerging markets can offer high growth potential but can also be more volatile due to political and economic instability. Before you delve into emerging markets investing, it's crucial to assess the political and economic stability of these markets.

Differences in Market Regulation

Regulatory standards and practices can vary significantly from one country to another. Some countries might have robust regulatory frameworks that ensure transparency and protect investor rights, while others might have weak or less developed regulations.

Differences in market regulation can influence the operation and performance of international mutual funds. Less regulated markets might offer higher potential returns but can also carry higher risks, including market manipulation and fraud.

Whether you're considering investing in highly regulated markets like European markets or less regulated ones, understanding the regulatory environment is key to mitigating risk.

Investing in international mutual funds can be a great way to diversify your portfolio and tap into global growth opportunities. However, it's crucial to thoroughly understand the associated risks and consider how they align with your investment goals and risk tolerance. By staying informed and making well-informed investment decisions, you can navigate the complexities of international investing and potentially reap the rewards.

How to Evaluate International Mutual Funds

Making a decision to invest in international mutual funds is just the first step. The next crucial step involves evaluating various aspects of the fund to ensure it aligns with your investment goals. The following sections will guide you through this process.

Understanding Fund Performance

The first aspect you should take into account is the fund's performance. This involves examining the fund’s historical returns over different periods, including short-term (e.g., 1-year), medium-term (e.g., 3-years), and long-term (e.g., 5-years or 10-years).

Time PeriodAverage Returns
1 YearX%
3 YearsX%
5 YearsX%
10 YearsX%

Remember, past performance is not a guarantee of future results, but it can provide an indication of how the fund has managed different market conditions. You should also compare the fund's performance to a relevant benchmark index to see if it has consistently outperformed the market.

Consider the Fund's Management

The management team behind the fund plays a crucial role in its success. Consider their experience, qualifications, and track record in managing other funds. Stability in the management team can be a positive signal as it suggests a consistent investment strategy.

Don't forget to look at the fund’s expense ratio, which is the annual fee that all funds charge their shareholders. This fee is expressed as a percentage of the fund's average net assets. The lower the expense ratio, the more of your money goes towards your investment rather than costs.

Look at the Fund's Holdings

Lastly, investigate the fund's holdings – the individual stocks, bonds, or other assets the fund invests in. This information can often be found in the fund's fact sheet or prospectus.

Examine the geographic distribution of the fund's investments. If you're aiming for global exposure, you should look for a fund that invests in a diverse range of countries. If you're more interested in a specific region or country, look for a fund that focuses on that area.

Consider the sector distribution as well. Some funds may concentrate on specific sectors like technology, healthcare, or consumer goods, while others may take a more balanced approach across multiple sectors.

Finally, consider the size of the companies the fund invests in. Some funds may focus on large-cap (large company) stocks, while others may invest in small-cap (small company) or mid-cap (medium company) stocks.

Remember, understanding your investment is key to making informed decisions. By evaluating the performance, management, and holdings of international mutual funds, you're well on your way to diversifying your portfolio and potentially gaining access to high returns from global markets. Be sure to also stay informed about global investment opportunities and trends to make the most of your international investments.

Tips for Investing in International Mutual Funds

Navigating the world of international mutual funds can be complex, but a few key strategies can help you maximise the potential benefits. Here are some important tips to consider when investing in international mutual funds.

Diversifying Your Portfolio

One of the primary benefits of investing in international mutual funds is the opportunity to diversify your portfolio. Diversification can help to reduce risk by spreading your investments across a variety of markets and sectors.

Investing in international mutual funds gives you exposure to companies and sectors from around the world, which can help to balance out the potential risks associated with investing solely in your home market. You might consider investing in a mix of developed and emerging markets for a balanced portfolio.

Be sure to read our guide on diversifying internationally for more detailed information.

Staying Informed About Global Market Trends

Staying informed about global market trends is crucial when investing in international mutual funds. It's important to keep up with news and developments that might affect the value of your investments.

This might include political events, economic data, market trends, and other factors that could influence the performance of international markets. Our international stock market analysis can be a helpful resource for staying informed about global market trends.

Regularly Reviewing and Adjusting Your Investments

Investing in international mutual funds requires regular review and possible adjustment of your investments. It's crucial to monitor the performance of your funds and make adjustments as necessary to align with your investment goals and risk tolerance.

This might involve rebalancing your portfolio to maintain your desired level of diversification, or shifting your investments in response to changes in market conditions. It's also important to consider any changes in your personal financial situation or investment goals that might warrant adjustments to your investment strategy.

In conclusion, investing in international mutual funds can be a rewarding way to diversify your portfolio and potentially achieve higher returns. However, it's important to approach this type of investing with a clear strategy and a good understanding of the associated risks. By diversifying your portfolio, staying informed about global market trends, and regularly reviewing and adjusting your investments, you can make the most of your international mutual fund investments.

The content in this article is provided for informational purposes only and should not be construed as professional advice. Always consult with a qualified expert or professional for specific guidance on any topic discussed here.
Lewis Edmonds -

Written by Lewis Edmonds

Lewis Edmonds became a part of Fibre in September 2023 to create Fibre Capital, due to demands from the Fibre Payments team to help clients with financial management. He shares a close and longstanding personal relationship with Directors Dan and Will. Taking the Director position at Fibre Capital was a natural and exciting step for him. Before its inception, Lewis spent nearly 10 years advising clients on financial portfolios and products, and had a 4-year tenure in FX. Post-university, he has solely focused on the Financial services sector. Lewis is recognized for his thorough approach, deeply understanding his clients' needs to provide lasting financial solutions.

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