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How do global equity funds work?

How do global equity funds work?
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Having a good understanding of the different types of investment products that exist is quite useful for investors. With sufficient knowledge, it becomes easier to pick investments that fit your goals or preferences. For example, you might have heard of global equity funds, which are a popular type of investment.

Let’s take a look at how they work.

What is a global equity fund?

It’s a kind of investment fund that invests in the stock of companies based anywhere in the world, including the investor’s home country.

The fund aims to identify the best possible companies and stocks around the world and invest in them. So as an investor, this fund can help you take advantage of the opportunities that the global economy presents. 

A global equity fund is usually actively managed. This means it has a manager who tracks its performance and makes buy, hold and sell decisions. However some of these funds may be passively managed, so check before you invest.

Are they a good investment?

Investing in a global equity fund can provide investors with a chance to diversify their portfolios on multiple layers, including geographical, sector and country layers. This reduces the possibility of the performance of one stock or the economic and political situation of one country negatively affecting the performance of the whole portfolio.

For beginners who are just getting into investing, this a particularly good risk mitigation strategy.

A global equity fund could also increase the potential returns for investors.

For example, the fund might invest in the stocks of companies in emerging markets whose prices are expected to appreciate as their local economies grow or improve. This might translate to greater returns for investors in the long term as opposed to strictly investing in the stock of domestic companies.

What are the risks?

Though global equity funds may be good for diversifying your portfolio and can increase your potential returns, they are not without risks.

In addition to the risk that comes with investing in stocks in general, investors in these funds face two other major risks:

  1. Currency risk: The exchange rate between a particular country’s currency and sterling often fluctuates. This can affect the sterling value of an investment. For example, a strong pound will translate to lower foreign stock value when the stock is converted to sterling.
  2. Country risk: This risk comes from focusing too much of the fund’s assets in a particular country. Such an approach increases the fund’s exposure to that country’s currency fluctuations, political risks and economic risks. These can all hurt the fund.

What are the most popular global equity funds?

There is no shortage of global equity funds for UK investors looking to diversify their portfolio. Among the most popular are:

  • Fundsmith Equity
  • Lindsell Train Equity
  • Blue Whale Growth
  • Baillie Gifford Global Discovery
  • Troy Trojan Global Equity

How can I invest in a global equity fund?

If you’re interested in global equity funds, then investing in one is quite simple with a share dealing account. If you don’t already have one, then check out top picks for the best share dealing accounts. You’ll find most of the popular global equity funds there. But as with any other kind of investment, don’t forget to do your research first when choosing a fund.

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