Along with broad-based international funds, there are funds that focus more narrowly on one country, such as Japan or India, or a specific region, such as Europe or Latin America. If you have a particular interest in investing in a specific country or region — for example, you think its economy has the potential to grow at a rate faster than those in other parts of the world — you may want to invest some of your international portfolio in a fund that focuses on that area.
Some country and regional funds may have higher potential returns than more diversified international funds, but the narrower a fund's geographical focus, the greater the volatility you're likely to see in the fund's performance. Therefore regional funds tend to be less volatile than single country funds and more volatile than broadly diversified international funds.
In addition, funds that focus on regions with emerging markets tend to be more likely to be vulnerable to political turmoil, which adds to their risk. It's important to keep tabs on current events in regions where you've focused your investments, especially if you might sell your fund rather than risk major losses in the short term.
You can find regional and country funds that follow specific investment strategies. Among the choices, you'll find both equity and debt funds, funds that offer a mix of investments, funds that focus on sectors such as utilities or telecommun-ications, funds that are actively managed, and funds that track a regional or country index.
Jeffrey Rosensweig, Goizueta Business School, Emory University
Dr. Jeffrey Rosensweig talks about some of the strategies individual investors can use to manage the volatility of emerging markets.
Given the volatility of some emerging markets, many investors may question using a buy and hold strategy to manage volatility and try to monitor events and trade actively instead. But because of limited access and liquidity,
active trading in emerging markets can be costly and difficult for individual investors. You may be able to reduce some of the risk of investing in these markets while enjoying their growth potential by diversifying very widely and limiting your investment in any single emerging market to a small percentage of your overall portfolio.
Jeffrey Rosensweig, Goizueta Business School, Emory University 