The Fund Industry: How Your Money is Managed, 2nd Edition

SECTIONFive

The Internationalization of Mutual Funds

In this section, we look outside the borders of the United States and examine the growing internationalization of mutual funds over the past three decades—a phenomenon with two distinct, but related, aspects. Mutual funds registered in the United States are increasingly likely to invest at least some of their assets overseas. At the same time, fund management companies—both U.S. and non-U.S.—are looking to gather assets from investors in other countries. That's particularly true for fund sponsors based in more mature markets like the United States and Western Europe.

While the two trends have the same root causes, they have each developed at a very different pace. Overseas investment by U.S. funds has grown significantly over the past 30 years and is now widely accepted by the U.S. investing public. By contrast, fund management companies have had mixed success in their efforts to gather assets from overseas investors. That's because fund markets around the world are usually walled off from one another by local tax and regulatory policy.

As a result, fund distribution remains a largely local business, giving fund managers based within a country a home court advantage. Firms—aspiring to global reach can't easily capture market share by distributing existing products around the world—even if those products have more desirable features, are combined with superior service, and are provided at lower cost. Fund sponsors instead must ...