Question

An international mutual fund’s performance is subject to conditions beyond the fund manager's control -- interpret this comment.

Answer 1

Answer-

International mutual funds are those funds that invest in foreign companies that may operate in multiple countries. These funds are also known by the name overseas or foreign funds.

Investing in International mutual funds can be subjected to higher risk exposure, but there are also chances of higher returns.

These are beyond the fund managers control as the portflio of companies that the International mutual funds invest are subjected to various regulations of the companies where these companies are operating and the volatility of the stocks can be very high.

There will be several factors like exchangs rates risk, price risk, interest rate risk and inflation risk along with sector performance which will determine the value of a particular stock. It will be differenrt to track all the stocks in the portfolio and the exposure to any kind of risk can lead to decline in the stocks.

The risk such as earthquakes, hurricanes and other disasters have catastrophic effect on the prices of stocks in the portfolio. For instance the outbreak of COVID-19 has led to adverse effects on stock markets across the globe and most of the stocks in many sectors has lost close to 50 % in one month barring a few defensive sectors like Pharmaceutical.

The uncertainity in the markets may led to huge losses in the stock prices causing the decline in international mutual fund performace which is not expected and beyond the fund managers control thus leadng to lower annual returns.