how a world fund works
world funds typically have a significant portion of their capital invested in u s listed securities but they also spread their investment capital among securities from several other countries this structure offers several valuable advantages chief among those advantages is that it limits exposure to any specific country by diversifying their portfolio these funds and their investors can help minimize their risk of a major loss since even large fluctuations in one region can often be offset and balanced out by gains in other regions this means more stability overall and less volatility and risk the returns are not relying solely on the performance of one particular economy or market at the same time this structure also limits exchange rate risks that refers to the risks involved in fluctuations in specific economies that can impact the exchange rate between currencies from one country to another some analysts argue that country diversification is no longer very effective due to globalization while others dispute this world funds vs international funds vs country fundsin the realm of investment funds several different geographically related terms can seem very similar but they have different and specific meanings along with world funds investments can also fall under the umbrella of international funds or country funds there are some critical differences between international funds and world funds and investors mustn t confuse the two international funds can invest in countries outside of the investors nation of residence for u s investors international funds invest exclusively in securities from countries outside of the united states while world funds can have up to 75 of their capital invested in u s securities in contrast country funds are mutual funds that limit their investments to securities from one particular country a country fund holds a portfolio of investments that are located exclusively in that given nation that type of fund is sometimes also referred to as a single country fund the common argument for the benefits of world funds is that while still based on the u s market world funds allow their managers to select the best securities out of the global marketplace instead of being limited to selecting only from a given country and missing out on potentially better investments 