What Is a World Fund?

A world fund is a type of mutual fund or other investment company that invests in securities that are traded in various different countries, including the United States. This type of fund is sometimes also referred to as a global fund. However, that name should not be confused with the Global Fund, which is a specific international organization dedicated to fighting the spread of infectious diseases, such as AIDS, malaria, and tuberculosis.

Key Takeaways

  • A world fund is a type of mutual fund or other investment company that invests in securities that are traded in various different countries, including the United States.
  • The structure of world funds offers several valuable advantages, chief among those advantages is that it limits exposure to any specific country.
  • By diversifying their portfolio, these funds and their investors can help minimize their risk of a major loss, since even large fluctuations in one region can often be offset and balanced out by gains in other regions.

How a World Fund Works

World funds typically have a significant portion of their capital invested in U.S.-listed securities, but they also spread their investment capital among securities from several other countries. This structure offers several valuable advantages. Chief among those advantages is that it limits exposure to any specific country. By diversifying their portfolio, these funds and their investors can help minimize their risk of a major loss, since even large fluctuations in one region can often be offset and balanced out by gains in other regions. This means more stability overall, and less volatility and risk. The returns are not relying solely on the performance of one particular economy or market.

At the same time, this structure also limits exchange rate risks. That refers to the risks involved in fluctuations in specific economies that can impact the exchange rate between currencies from one country to another. Some analysts argue that country diversification is no longer very effective, due to globalization, while others dispute this.

World Funds vs. International Funds vs. Country Funds

In the realm of investment funds, there are several different geographically-related terms that can seem very similar, but they have different and specific meanings.

Along with world funds, investments can also fall under the umbrella of international funds or country funds.

There are some critical differences between "international funds" and "world funds." and it’s important that investors do not confuse the two. International funds can invest in countries outside of the investors’ nation of residence. For U.S. investors, international funds invest exclusively in securities from countries outside of the United States, while world funds can have up to 75% of their capital invested in U.S. securities.

In contrast, country funds are mutual funds that limit their investments to securities from one particular country. A country fund holds a portfolio of investments that are located exclusively in that given nation. That type of fund is sometimes also referred to as a single country fund.

The common argument for the benefits of world funds is that, while still based on the U.S. market, world funds allow their managers to select the best securities out of the global marketplace, instead of being limited to selecting only from a given country and missing out on potentially better investments.