A world fund, also called an international fund, is a type of mutual fund that invests its assets in companies, organizations, governments, and bonds throughout the world. A mutual fund is an investment that has thousands of like-minded investors. Having such a large number of investors allows the mutual fund to commingle the investors’ resources so that the fund can invest broadly. The mutual fund then uses the investors' assets to purchase multiple securities that fulfill the objectives of the mutual fund.
Similar to mutual funds that invest in domestic securities, a world fund can come in many different styles. These differences can be identified by the objective of the fund. Some world funds focus on investing in specific sectors of the world, such as developing nations. These are generally called developing or emerging market funds.
The world fund may purchase stocks of established, expanding companies all over the world. These are typically “growth” or “growth and income” funds. A growth style fund is a volatile fund that seeks long-term gains. A growth and income fund is less volatile, and seeks long term gains mixed with current income.
The world fund may target specific parts of the world. There are many funds that invest solely in Asian or European companies. In addition, others purchase securities primarily in Canadian or Latin American companies.
A world fund also commonly invests in bonds. The bonds may be government, mortgage, corporate, and asset-backed. Bonds within world funds may be represented by various currencies, including U.S. dollars.
World funds are typically considered to be higher risk investments than those that invest in the United States. Moreover, some of the risks are unique to world markets. For example, a fund that invests in emerging markets may be investing in a narrow range of industries. That is because emerging market economies are often dominated by only a few types of companies. In addition, emerging markets, by their nature, can be more volatile than an established economy.
Conversely, world funds also focus on nations or markets that are as diversified and stable as that of the United States. The political instability and narrow market economies found in some developing nations would not be a concern for investors in a world fund that purchases stocks or bonds in countries such as those in northern Europe or Canada.
