Does the Fund Concentrate in a Specific Region or Country?

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Does the Fund Concentrate in a Specific Region or Country?

While you are examining a fund’s country exposure, get a feel for whether the fund prefers a few markets or a particular region, or whether it casts a wider net. Investment research firm Morningstar clumps international funds that focus on a single region into one of the following regional categories: Europe stock, Latin America stock, Japan stock, Pacific/Asia ex-Japan stock, China, and India.

However, funds can overweight particular countries or regions and still land in the broad foreign-stock category because they have enough variety among their holdings to avoid being classified as regional funds. For example, one fund housed more than 35% of its assets in Japan one year when the average foreign-stock fund, by comparison, held less than 20% in Japan.

Concentration can have its downsides

Note that a good dose of any single region or country can deliver uneven results. In spite of a stellar performance in the bear markets in some years, some funds have lost big percentages in other years. To stay off the return trampoline, find funds that own stocks from a wide variety of markets.

How to start investing

Unless you understand how to evaluate these funds, though, investing abroad can be pretty harrowing. The key to smart foreign-fund investing comes down to looking beyond returns and ratings and understanding how your fund invests. By doing so, you will be able to set reasonable expectations for the investment and uncover its hidden risks—and avoid surprises.