Using Mutual Funds to Invest in Foreign Securities

When investing in foreign securities, you can use American depository receipts (ADRs) to build your portfolio. However, there is an easier way to invest in foreign markets: the mutual fund. Both closed-end and open-end mutual funds are available to suit many different investment objectives. You can invest in funds that specialize in a specific country such as Japan, Mexico, Brazil, Korea, or many more. Some funds specialize in a global region such as Asia or Latin America. Still others put together portfolios that reflect stocks from many different countries with a common objective. Such funds go by names such as "global growth fund" or "emerging-markets fund."

These funds offer low minimum investments and remove all of the hassles of worrying about foreign taxes and regulations. Though market risks and exchange rates are still there, at least you have the advantage of professional fund management and a diversified portfolio that minimizes the risks as much as possible. Most foreign and international funds send researchers abroad to gather information, but a few manage their portfolios strictly with information they gather without traveling.

Many of the mutual funds that specialize in the stocks of specific nations are closed-end funds. Rather than distributing and redeeming shares continually, closed-end funds issue a set number of shares, which can then be traded on the secondary market.

Foreign funds are a convenient and popular way to participate in the international market. You may also find that many funds that are considered US funds actually have a percentage of their portfolio invested in foreign companies or foreign affiliates to their US company holdings.