What Role Do International Funds Play in Your Mutual Funds Portfolio?
Mutual funds provide diversification benefits for small investors. The continual quest for introducing new fund types with different investment objectives has resulted in investors forming fund portfolios. With equity funds typically including well more than the ten to forty stocks required to be well diversified, it would be interesting to find that further diversification benefits are possible through combinations of funds, or mutual fund portfolios. We explore the diversification benefits of adding foreign to domestic equity fund portfolios. During the period of December 1993 to June 1999, we find that diversifying internationally did not provide incremental benefits to those attained by diversifying within domestic fund types. This result may be specific to the time period that our sample covers.