The Vanguard Group is an investment firm with more than 50 different mutual funds in which the public may invest. Among these funds are 13 international funds that concentrate on investments in non-U.S. stocks and bonds. One of these is the International Growth Fund. The following information about this fund was provided in the fund’s prospectus, dated December 28, 2009.
The International Growth Fund’s annual report for the year ended August 31, 2009, indicated that 94 percent of the fund’s portfolio was invested in 177 non- U.S. stocks and 6 percent was in temporary cash investments. The allocation of fund net assets by region was as follows: Europe 54 percent, Pacific 24 percent, Emerging Markets 20 percent, and Canada 1 percent. The sectors and individual countries in which the fund was invested are presented in the following tables:
Required:
1. Explain why an individual investor might want to invest in an international growth fund.
2. Describe the risks associated with making an investment in an international growth fund. Identify the risks that would be common to domestic and international funds, and those risks that would be unique to an international fund.
3. Discuss how the fact that foreign companies are not subject to the same accounting, auditing, and financial reporting standards and practices as U.S. companies poses a risk not typically encountered when investing in the stock of U.S. companies.
4. Consider the allocation of fund assets by region. Speculate as to why the proportions of fund assets are distributed in this manner.
5. Consider the country diversification of fund assets. Identify the countries in which the fund is most heavily invested. Speculate as to why this might be the case. Are there any countries in which you would have expected the fund to be more heavily invested than it is? Are there any countries in which you would have expected the fund to be invested and it is not?
6. Consider the sector diversification of funds assets. Identify the sectors in which the fund is most heavily invested. Speculate as to why this might be the case.
