Case 1-2 Vanguard International Growth Funds
1. Explain why an individual investor might want to invest in an international
growth fund. An individual can become an investor in an international if he or she may have the potential to deliver benefits to certain economies and this enables one to get the required funding they need. The individual investor may be targeting greatly to contribute to a country’s long-term growth. This includes targeting of being successful internationally in either medium or short terms. An individual investor will need to work closely with the international growth fund providers to develop appropriate packages of services that will help the individual investors.
The international growth fund providers can advise the individual investor to plan all the expected economic benefits of a certain economy. An individual investor will get access to support from the international growth funds on almost all the steps the individual investors. Some international growth funds have a goal to provide long-term capital appreciation. The international growth fund advisors can also advice the individual investor on what steps to take and hence this can be a great boost to an individual.
2. Describe the risks associated with making an investment in an international growth fund. Identify the risks that would be common to domestic and international funds, and those risks that would be unique to an international fund. There are many risks associated to international growth funds. Currency risk is the common risk that affects majority of investors. This is where the value of a certain foreign currency will decrease according to the unfavorable changes in the currency exchange rates. Others risks that an investor may face include country or region risk, investment style risk, stock market risk, manager risk and other plain talk risks.
3. Discuss how the fact that foreign companies are not subject to the same accounting,
auditing, and financial reporting standards and practices as U.S. companies poses a risk not typically encountered when investing in the stock of US Companies.
It is evident that different countries vary their accounting principles and reporting standards. This is because most of the standards are set in alignment to the laws of the country where the company resides. Some countries have variation in the tax amount that the company should remit to the state before stating their retained profits. When investing to the stock in the United States of America there will be no risk of investment because it is a way of portfolio diversification hence there is minimization of investment risk. When investing in the US stock it is clear that those investors interested in long-term returns will highly benefit.
4. Consider the allocation of fund assets by region. Speculate as to why the proportions
of fund assets are distributed in this manner.
The proportion of fund assets is distributed because it is a way of portfolio diversification. This is a method of minimizing risk because investing the fund in one region will not earn the asset maximum returns and the risk involved is high. When distributing the proportion in different regions, the returns can be maximum because different countries have different rates of returns in the investment hence the chance of maximization of profit on the asset funds are high.
5. Consider the country diversification of fund assets. Identify the countries in which the fund is most heavily invested. Speculate as to why this might be the case. Are there any countries in which you would have expected the fund to be more heavily invested than it is? Are there any countries in which you would have expected the fund to be invested and it is not?
It is evident that the fund is highly invested in the United Kingdom with approximately 20% of the total fund. After the United Kingdom, China is the second country that has an investment of the asset fund with approximately 9% of the fund. Lastly, Japan has an investment of up to 8.6%, his countries are known as the most industrialized countries in the world. This means the returns from these regions are desirable and the risks of investment are low. It can also be speculated that the regions have a flexible terms of trade that are attract investors in the country.
6. Consider the sector diversification of funds assets. Identify the sectors in which the fund is most heavily invested. Speculate as to why this might be the case.
The fund is most heavily invested in the stocks in famous companies in the world, fro example, Tencent Holdings Ltd, Baidu Inc and BhP Billion Ltd only to mention but a few. It can be speculated that investing in stock is the safest method when diversifying the portfolio of a company. The investments are long-term; hence, the investments tent to gain higher returns in the longrun.
