Global-stock mutual funds have become extremely popular investments. But these funds — which invest in companies located anywhere in the world — are not well-diversified and lose investors more than 2% a year on average in additional returns.
That’s a lot of money in any currency.
Global funds are relatively new, a response to increasing demand among U.S. investors for international stocks. The supposed benefit of these funds was that they took the guesswork out of investing. Clients no longer had to determine how much they wanted to put into, say, a Mexico fund or a Brazil fund. They could simply go global.
The concept caught on. Global funds have been some of the fastest-growing fund offerings. Nowadays there are about 750 global funds with more than $800 billion in assets under management.
Roberto Rigobon is the Society of Sloan Fellows Professor of Applied Economics at MIT’s Sloan School of Management.