Topic 17 - Foreign funds and global portfolio improvement. In this chapter, students understand and can recall the benefits of foreign funds (vs. securities), alternative foreign investment funds; students can compute return or volatility improvement from global diversification. | Topic #17: Foreign funds and global portfolio improvement L. Gattis The Pennsylvania State University Finance 407: Multinational Financial Management 1 Review 2 The yen is selling at a 3% premium to the USD. Yen banks are lending yen at 1%. What is the USD cost of a yen loan? Learning Objectives 3 Learning Objectives Students understand and can recall the benefits of foreign funds (vs. securities) alternative foreign investment funds Students can compute Return or volatility improvement from global diversification International Funds 4 Investment Funds Advantages: Professional Management, Diversification, Reporting/Tax, Index Funds (Passive Index Matching) Advantages Low fees, Matches Index less fees Styles Major Indexes (Nikkei, S&P500, NASDAQ, FTSE) Country Funds (WEBS) Regional Funds (EAFE, EMA, Frontier) World Equity Benchmark (IOO, ACWI, DGT) Sovereign and Corporate Bond Index Funds Managed Funds (Mutual Funds) Advantages Professional Securities . | Topic #17: Foreign funds and global portfolio improvement L. Gattis The Pennsylvania State University Finance 407: Multinational Financial Management 1 Review 2 The yen is selling at a 3% premium to the USD. Yen banks are lending yen at 1%. What is the USD cost of a yen loan? Learning Objectives 3 Learning Objectives Students understand and can recall the benefits of foreign funds (vs. securities) alternative foreign investment funds Students can compute Return or volatility improvement from global diversification International Funds 4 Investment Funds Advantages: Professional Management, Diversification, Reporting/Tax, Index Funds (Passive Index Matching) Advantages Low fees, Matches Index less fees Styles Major Indexes (Nikkei, S&P500, NASDAQ, FTSE) Country Funds (WEBS) Regional Funds (EAFE, EMA, Frontier) World Equity Benchmark (IOO, ACWI, DGT) Sovereign and Corporate Bond Index Funds Managed Funds (Mutual Funds) Advantages Professional Securities Selection, Possible outperformance of index Styles Country Specific Mutual Funds Regional Mutual Funds (Europe, Asia, etc.) Foreign Mutual Funds (World excl. .) Global Mutual Funds (Includes .) World Bond, Regional Bond, Corporate Bond, Sovereign Bond Electronic Traded Funds (ETFs) 5 ETFs are index funds that are traded on exchanges like stocks ETFs track published indices and thus require little management and offer low fees Annual fees and costs are often less than 50 bps per year Like stocks, ETFs can be bought intra-day, shorted, and bought on margin Top ETFs by Size (9/21/10) 6 Developed Countries (Incl. EAFE) 7 Emerging Markets (BRIC countries and others) 8 International “Managed” Mutual Funds 9 A . investor can achieve international diversification by investing in a international mutual fund. Unlike ETFs, Mutual Funds employ active management techniques and try to find undervalued securities. Management fees are typically 100-200bps per years .
