What Is a Regional Fund?

A regional fund is a mutual fund run by managers who invest in securities from a specified geographical area, such as Latin America, Europe, or Asia.

A regional mutual fund typically owns a diversified portfolio of companies based in and operating out of its specified geographical area. However, some regional funds also invest in a specific segment of the region's economy. For example, a Latin American energy fund is considered a regional fund.

Key Takeaways

  • A regional fund is a mutual fund run by managers who invest in securities from a specified geographical area, such as Latin America, Europe, or Asia.
  • A regional mutual fund typically owns a diversified portfolio of companies based in and operating out of its specified geographical area.
  • Many investors purchase regional funds for diversified exposure to a particular geographic region they think offers above-average return prospects.

How a Regional Fund Works

A regional fund, like all mutual funds, is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, investment grade bonds, high yield bonds, leveraged loans, and other assets. Many specialize in one asset class, such as stocks, while others offer a diversified mix of asset classes.

Professional money managers allocate the fund's investments and attempt to produce capital gains, income, or in some cases, both on behalf of investors, depending on the fund objective.

It’s counterintuitive, but some investors also consider emerging markets funds regional funds, even though these are not confined to a specific geographic region. Emerging markets funds typically invest in China, India, and Russia, as well as a mix of countries in Latin America, Southeast Asia, and Africa.

Many investors purchase regional funds for diversified exposure to a particular geographic region they think offers above-average return prospects. These funds are practical for the average investor, since most people wouldn't have enough capital to adequately diversify across many individual investments in the region, nor would they necessarily have the expertise to select holdings on their own.

Like all mutual funds, regional funds may be either active or passive. The former is run by a portfolio manager or a management team and seeks to beat the performance of a regional index. The latter attempts to minimize fees and match the performance of a regional index.

Most regional funds invest only in publicly traded companies. However, some active funds also include a small number of investments in privately held companies.

Some regional funds cost more to operate than U.S.-only funds, therefore, investment managers typically charge higher fees for these funds.

Regional Fund vs. International Fund

Most regional funds are indeed a type of international fund. The international category also includes funds with broad exposure to all regions outside the U.S. or specific exposure to investments in one non-U.S. nation. For example, many investment managers offer an international investment-grade bond fund, as well as a China equity fund. Each is an international fund.