The process of choosing the best international mutual fund is different for every investor. When considering adding an international mutual fund to your portfolio, determine your personal investment priorities, examine the basic management data of the fund and consider the history and structure of the fund. Investing safely and profitably in international mutual funds requires more research and preparation than investing in domestic mutual funds, but can be an excellent way to diversify a portfolio.
While making a decision to invest in a mutual fund, consider your personal investing priorities. Determine the rate of return are you seeking from your investments and the level of risk are you willing to accept. Decide whether you are looking for a fund that focuses on increasing value or one that seeks high dividends. As with all investments, in international mutual funds, higher risk usually brings greater return on an investment, but too much risk can lead to the collapse of a portfolio.
Once you have settled on your risk tolerance, begin examining specific international mutual funds. Each fund will provide, in its prospectus, a short description of the investment goals of the fund, such as a policy of pursuing either value investments in overlooked firms or growth investments in high-performance but sometimes high-price sector leaders. Also consider the underlying fundamentals of the fund, particularly the expense ratio, which represents the total value of the fund lost each year to cover the expenses of managing the fund. Decide between an index fund, which buys stocks in a given sector or exchange, or an actively managed fund, which will buy and sell stocks in search of profits and which may not perform as well as an index fund, even in the hands of a skilled manager.
Evaluating international mutual funds also requires some research into the areas where the fund operates. Some international mutual funds focus on specific countries, some on whole regions and some on particular industries. Evaluate the political and economic climate in the countries where a fund will be operating before investing. Investments in less stable regions can be very profitable, but this profit comes at the cost of added risk. Examine the currency policy of the fund as well, since fluctuations in the international currency markets can impact fund value.
Study the performance history of the international mutual funds that you are considering. Past performance is no guarantee of success, but it is still worth considering. Remember that the worst performers will have collapsed and vanished entirely, which skews data in favor of the surviving funds. Steady, good rates of return may be a better guide to long-term fund performance than large returns over a short period.