Investors are increasingly shifting their focus toward global equity funds from domestic equity funds, following growth in several major economies. According to the latest fund flow report of the Investment Company Institute (ICI), stock funds investing globally have registered 36 straight weeks of inflows. In contrast, domestic equity funds have registered significantly strong outflows in seven of the last eight weeks.
Moreover, recently released economic data indicates that the world's major economies, including China and the Eurozone, are gradually gathering pace. Given their bullish economic backdrop, these countries offer lucrative investment propositions. Global mutual funds are excellent options for those looking to widen exposure across countries.
As per the latest ICI weekly fund flow report, domestic equity-based funds have seen heavy outflows, whereas global equity funds continued to attract investors this year. In the week ended August 16, total equity funds reported outflows of $2.698 billion. While domestic equity funds witnessed outflows of around $5.156 billion, international equity funds saw inflows of $2.458 billion.
According to Lipper's fund flow report for the week ended August 9, equity fund flows were mixed. Total inflows in international equity funds reached $541 million, while domestic equity funds posted outflows of $5.048 billion.
If selected carefully, global mutual funds have the potential to offer secure and attractive investment opportunities. Different studies over the years have shown that a portfolio with both domestic and foreign securities helps in reducing risk while enhancing returns. Also, a steady decline in U.S. equity funds demand might encourage investors to consider diversifying their investments throughout the globe.
Additionally, several major European countries have recently posted steady economic growth. Per the Federal Statistics Office, the biggest economy of the Eurozone, Germany's GDP advanced 0.6% in the second quarter, marking twelve straight quarters of increase. Also, the second- and third-largest economies of the Eurozone, France and Italy rose 0.5% and 0.4%, respectively, during the same quarter. Also, Spain's economy registered growth of 0.9%, better than the Eurozone average of 0.6%.
China's economy seems to be slowing, but has still managed to maintain steady growth. The country's GDP increased 6.9% year over year in the second quarter of 2017, maintaining the first quarter's pace. China reported a strong first half, but data released for July showed signs of falling GDP. This can primarily be attributed to fears of a potential financial crisis owing to the looming debt problem faced by the country.
But other economic indicators have been largely positive. For instance, China's Manufacturing Purchasing Managers' Index (PMI) increased to 51.1 from 50.4 in June 2017. A reading above 50 indicates expansion. Therefore, despite the slowdown, China seems to be on track to achieve its 6.5% growth target for 2017.
Further, China's economy is expected to register growth of 6.7% in 2017, per IMF report. The report also stated that the world's second-largest economy is now estimated to grow at an average rate of 6.4% between 2017 and 2021, better than last year's projection of 6%.
With tensions between U.S. and North Korea slowly cooling down and investors still fretting over Trump-led uncertainty, global equity mutual funds have emerged as wise options. According to Morningstar, the world large stock mutual fund category posted year-to-date (YTD) and one-year returns of 14% and 13.5%, respectively.
This encouraging backdrop calls for investors' attention to five global equity mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have impressive year-to-date (YTD) returns. They also have minimum initial investment within $5,000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
USAA World Growth Fund (USAWX)seeks growth of capital. USAWX generally invests in equity securities of both non-U.S. and U.S. companies. USAWX primarily focuses on various types of equity securities such as preferred stocks, common stocks, depositary receipts, etc.
USAWX has an annual expense ratio of 1.13%, which is below the category average of 1.22%. The fund has YTD returns of 17.2%.
T. Rowe Price Global Growth Stock Fund (RPGEX)seeks capital appreciation for the long run by investing primarily in large-cap global companies. RPGEX invests in more than five countries, including the U.S. The fund will also invest more than 40% of its assets in stocks of large-cap companies, which are based outside the U.S.
RPGEX has an annual expense ratio of 1.00%, which is below the category average of 1.22%. The fund has YTD returns of 22.7%.
Vanguard Global Equity Fund (VHGEX)uses bottom-up stock analysis to invest a large share of its assets in equities of companies all over the globe. It invests in both growth and value companies irrespective of their market capitalization. The fund also diversifies its allocation across different industries.
VHGEX has an annual expense ratio of 0.51%, which is below the category average of 1.22%. The fund has YTD returns of 17.4%.
Oppenheimer Global Fund A (OPPAX)seeks growth of capital. OPPAX invests in both domestic and foreign companies, with special focus mainly on foreign issuers including those from developed and emerging markets. The fund normally invests in more than three nations.
OPPAX has an annual expense ratio of 1.13%, which is below the category average of 1.22%. The fund has YTD returns of 22.9%.
MFS Global Equity Fund A (MWEFX)seeks appreciation of capital. The fund invests the lion's share of its assets in equity securities such as common stocks, preferred stocks and depositary receipts. It may invest heavily in international companies. MWEFX invests either in growth or value companies, or purchases both value and growth-oriented stocks.
MWEFX has an annual expense ratio of 1.21%, which is below the category average of 1.22%. The fund has YTD returns of 17%.
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