Vanguard International Growth Fund Harvard Case Solution & Analysis

Vanguard International Growth Fund Case Solution

Issues

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.
3. companies pose 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.  Speculate as to why this might be the case.

Facts

The case talks about one very important concept i.e. International Investment and discusses the benefits as well as the risk involved in trading internationally with relates to an investment firm, The Vanguard Group provides investment opportunities for a public investor with the help of its 50 different mutual funds in which almost 13 funds are trading in international market. The case focuses mainly on the international growth fund whose prime objective is to increase the capital for the investors.

As compared with the individual investor having possibilities of investing in only one country, the investor with the help of international investing could significantly diversify its risks and thereby increases its return. However, it can be seen from the case that this type of fund is exposed to a number of risks including the investment style risk, in which there are chances that the returns could be lower as compared to the returns in the overall market.

The other risk is the stock market risk in which the chances are that the prices of the stock in the market for the long and short period could decline. The risk of foreign stocks which sometimes moves in opposite direction as compared with US stocks.The other significant risks are relating to the country risk as well as the currency risk. It can be seen that political issues, financial troubles or the natural disaster could occur anywhere, which could negatively affect the performance of the stock. Moreover, the fluctuation in the currency due to a number of unfavorable events could also hamper the returns of international investments.

The risk as mentioned in the case is the manager risk, which could yield adverse results due to the poor selection of stock in a portfolio from managerial aspect which would not be able to diversify the risks involved. The other significant discussion provided in the case focuses on the reasons of the difference in the return which could be generated in foreign investment as opposed to the US stock.

It can be seen that different territories have their accounting, auditing as well as reporting standards; also they differ in the government regulations which mainly creates difference in the returns which could be generated from investing. The annual report regarding International Growth Funds for the year ended August 31, 2009 revealed the fact that about 94% of the stocks in the portfolio are US based whose divisions in different regions are also illustrated with the help of a table..................

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