VANGUARD INTERNATIONAL 1
VanguardInternational Growth Fund
Vanguard Group refers to an international investment firm with over50 funds that allow the public to make investments. The InternationalGrowth Fund is one of 13 ventures that focus on investments innon-U.S. bonds and stocks. Notably, Vanguard Group provides anappreciation of long-term capital. The Fund specializes in emergingmarkets in Latin America, the Far East, and Europe. Severalinvestment advisors are used to identify companies with high growthpotential. In fact, the Fund had a market capitalization of $32billion in 2012. Inevitably, the Fund is subject to various types ofrisk. For example, investment style risk supposes that the returnsfrom the domestic stock market will supersede those from non-U.S.growth stocks. Furthermore, stock market risk assumes that stockprices will decline due to the inherent uncertainty of foreignmarkets. Additionally, country/regional risk supposes that worldevents such as natural disasters, financial troubles, and politicalupheavals will adversely influence the value of securities. On theother hand, currency risk arises due to changes in the exchange ratesand hence the value of foreign investments. Manager risk also occursowing to the poor selection of securities.
The Fund`s annual report revealed that 3% of the portfolio wasinvested in temporary cash settlements while the majority was in 186non-U.S. stocks. Moreover, 55% of the fund’s assets were investedin Europe while 23% was in Emerging Markets. The Pacific region had17%, North America had 23%, and the Middle East had 1%. WithinEurope, the United Kingdom had 20% of equity exposure whileSwitzerland had 7.8%. The consumer discretionary sector had 16.6% ofequity while consumer staples had 10.4%. Nevertheless, the financialsector accounted for 19.6%.
1. An individualinvestor could invest in an international fund to diversify risks.Moreover, foreign growth funds have access to the market informationof different sectors. Hence, they can focus on the most profitableventures based on local circumstances.
2. Makinginvestments in a growth fund exposes an individual to several risks.However, some risks faced by a person would be common to bothinternational and domestic funds. On the other hand, other challengeswould only be faced by investors in international funds. For example,both funds are affected by stock market risk due to the decline inprices (Dempsey, 2015). Manager risk is also a common occurrencesince both funds can be subjected to poor security collection.Nevertheless, country/regional risk is unique to internationalmarkets since it concerns the financial challenges and politicalturmoil experienced in particular nations (Baker & Filbeck,2015). Hence, different levels of country risk could occur dependingon the country’s characteristics. Besides, currency risk is uniqueto international markets since it focuses on a nation’s relativeexchange rates (Mobarek & Mollah, 2016).
3. Indeed, U.S.companies are required to adhere to higher standards of accounting,auditing, and financial reporting compared to foreign corporations.Hence, investment style risk occurs whereby the proceeds fromnon-U.S. growth stocks are less than the returns from domesticmarkets. Additionally, large-cap stocks are less volatile thansmall-and-mid-cap stocks.
4. 54.9% of netfund assets are invested in Europe due to the numerous opportunitiesfor growth and expansion. Emerging markets such as South Korea,Brazil, and China have enormous potential that justifies 23% ofequity exposure. Contrariwise, the U.S. market only has 1.5% ofinvestments since the Growth Fund focuses on non-U.S. markets.
5. The UnitedKingdom has the largest portion of investments owing to its superiormarkets and industries. I would have expected the fund to be moreinvested in China and Japan due to the sheer size of their domesticmarkets (Finch, 2015). Furthermore, I would have expected the fund tobe invested in Italy and the United Arab Emirates.
6. Inevitably,the fund is most heavily invested in the financial sector due to thefocus on non-U.S. growth stock markets. More investments have alsobeen made in consumer discretionary and industrial sectors since theFund targets domestic markets.
Vanguard Group has focused its investments on non-U.S. growth stockmarkets to realize decent returns for its investors. Nevertheless,more funds need to be invested in emerging markets such as China andBrazil. Japanese markets also present additional opportunities forinvestments. Besides, the Vanguard Group must embrace stableeconomies such as Italy and the United Arab Emirates.
Baker, H. K. & Filbeck, G. (2015). Investment risk management.New York, NY: Oxford University Press.
Dempsey, M. (2015). Stock markets, investments, and corporatebehavior: A conceptual framework of understanding. London, U.K.:Imperial College Press.
Finch, N. (2015). Emerging markets and sovereign risk. NewYork, NY: Palgrave Macmillan
Mobarek, A. & Mollah, S. (2016). Global stock marketintegration: Co-movement, crises, and efficiency in developed andemerging markets. New York City, NY: Palgrave Macmillan.