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

CHAPTER 17

Cross-Border Investing

Millions of Americans are traveling to the far corners of the globe—at least their money is. Over the past three decades, U.S. investors have been steadily increasing their exposure to foreign securities. They've taken to the road in the hopes of finding better returns than they can get at home, in economies that have a higher potential for growth. And investing overseas has the added benefit of increasing the diversification of their portfolios.

Mutual funds have acted as travel agents for many U.S. investors who want to venture abroad but are worried about hazards and hassles. Fund managers monitor the investment risks and deal with the operational complexities on behalf of their shareholders, to make going overseas no more work than staying at home. In this chapter, we talk about why international investing has become easier—and why it can still be quite difficult.

This chapter reviews:

• The reasons for the growth in cross-border investing.
• The advantages and risks of investing overseas.
• The operational challenges of international investing.
• Managing a global or international fund.

THE GROWTH IN CROSS-BORDER INVESTING

Since the early 1990s, U.S. investors have been building up their portfolios of international securities, as shown in Figure 17.1. By the end of 2012, U.S. investors held close to US $8 trillion of international securities. That's nine times the amount held less than 20 years previously despite a sharp drop during the financial ...