How closed-end funds and international diversification can enhance your portfolio
Diversifying internationally gives investors the freedom and flexibility to access a broader range of opportunities and be selective in investing among regions.
Closed-end funds offer a professionally managed solution that promotes long term investing and a variety of approaches to diversification, from global to specific regions or countries.
Ways to diversify include adding an allocation to a specific country or using both region- and country-specific funds to develop an appropriate allocation that is tailored to investors’ individual needs.
A world of choices
Today, there are thousands of ways to achieve international diversification in a portfolio. However, a majority of investors don’t seem to recognize the benefits of investing outside their home country. A recent survey by the International Monetary Fund (IMF) showed that U.S. investors allocated more than 70% of their equity assets to the U.S.
Engaging in this type of investor home bias can mean missing out on a wider range of investment opportunities that may have the potential for strong returns.
Source: Morningstar Direct, December 31, 2017. For illustrative purposes only.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
Performance of the indexes above is not necessarily of the performance of any Aberdeen product.
Diversifying internationally gives investors the freedom and flexibility to access a broader range of opportunities and be selective in investing should some regions not seem as attractive as others. Additionally, lower correlations among certain asset classes can help reduce portfolio volatility.
Open possibilities with closed-end funds
Closed-end funds issue a fixed number of shares, meaning that the managers of these funds have a stable pool of capital to use when investing for the long term, even when redemptions occur. With a stable level of assets to work with, closed-end funds can remain fully invested in less liquid markets over market cycles.
Closed-end funds can also trade either at a premium or a discount to net asset value (NAV) or their underlying portfolio. The chart below shows that many funds are currently trading at a discount, meaning that investors can buy shares at a lower price while gaining exposure to international investments and actively managed strategies.
Source: Morningstar, December 31, 2017. For illustrative purposes only. Peer group is Morningstar US Closed-End Funds. *Data definition: The monthly premium/discount from its NAV at the closing price.
We believe that when diversification is unbound, possibilities abound.
At Aberdeen Asset Management, our teams of highly experienced Financial Explorers are on a relentless quest around the globe for long-term growth opportunities. They live in the countries in which they invest and pair global perspective with regional focus.
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments. Equity stocks of small-cap companies carry greater risk, and more volatility than equity stocks of larger, more established companies. There are also risks associated with investing in a single country or single region fund.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
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