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Finding the Best Global Mutual Fund

The Easiest Way to Create a Diversified Portfolio

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Global mutual funds have grown in popularity over the years by giving investors the ability to easily diversify their portfolios. Unlike international funds, regional funds or country funds, global mutual funds include (sometimes significant) exposure to the United States, making them perfect for 401(k)s, IRAs, and other portfolios without a preexisting U.S. component.

What are Global Mutual Funds?

Global mutual funds are simply mutual funds that invest around the world. By investing in securities around the world, including in the U.S., these mutual funds offer investors the ability to effectively diversify their portfolios with a single security. And just like traditional mutual funds, they can be easily purchased and sold using a standard brokerage account.

Notably, global mutual funds differ from other types of international mutual funds like:

  • International Funds - Only invest in countries outside of the United States and are also known as "foreign funds" in some circles.
  • Regional Funds - Only invest in specific geographic regions, such as Europe, Asia or Latin America, rather than around the world.
  • Country Funds - Only invest in specific countries outside of the United States, such as Spain or Chile, rather than around the world.

A good example of a global mutual fund is the PIMCO All Asset All Authority Fund INSTL (PAUIX), which invests around the world in stocks, bonds, real estate, commodities and other securities. Over the past five years, this fund has returned 7.75%, compared to 2.01% for the S&P 500 benchmark and 9.07% for the CPI+6.5% benchmark, as of March 31, 2012.

Top Performing Global Mutual Funds

Mutual funds are typically ranked by their annual returns compared to a benchmark index, such as the S&P 500 or Russell 2000. There are many companies that track this performance, but the most popular resource is MorningStar. The website's International Investing Center provides fund screeners and other tools that make finding the right global mutual fund easy.

Another popular resource is Kiplinger, which offers a free Global Stock Fund screener for one-year, three-year, five-year, ten-year and 20-year periods. However, it's worth noting that not all of these funds are global mutual funds in the true sense of the word, but rather international mutual funds that may invest in specific countries or regions as well.

Compare Fees & Expenses

All mutual funds have various fees and expenses charged to investors, ranging from redemption fees to front-end loads. These fees directly affect the value of an investment over time and may differ between funds. For instance, a no-load mutual fund may be cheaper to sell in the near-term, while high management fees could impact a fund's returns.

Investors can compare mutual fund fees and expenses using FINRA's Fund Analyzer, which estimates the impact of these fees on more than 18,000 mutual funds, ETFs and ETNs. Considering all of the fees can help investors avoid making costly mistakes and ensure that the after-fee rate of return meets their expectations.

Diversification Requirements

Most investors look towards international mutual funds to provide exposure to worldwide stock markets. When it comes to this kind of diversification, global mutual funds aren't what many investors expect. These funds can hold a large amount of U.S. securities, since the U.S. represents a significant worldwide market, making it not so useful for some.

Instead, global mutual funds are best used as a vehicle to create a diversified portfolio for those that do not own significant shares in any individual country. For instance, those who are investing through an employer 401(k) may want to consider global mutual funds instead of narrower U.S.-focused mutual funds or international-only mutual funds.

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