International Value Funds 

International value funds are excellent investments for those who diversify their investments globally and enjoy undervalued stocks in international markets. The funds are disciplined because they only look for investment opportunities in companies that seem undervalued compared to their intrinsic value. Understanding international value funds for beginner investors opens the door to a broader range of opportunities beyond domestic borders. 

This article delves into international value funds, their benefits, risks, and investment strategies. It also provides practical examples and answers to frequently asked questions. 

What are International Value Funds? 

International value funds are mutual funds or exchange-traded funds (ETFs) that invest in undervalued companies outside the investor’s home country. These funds aim to generate long-term capital growth by identifying and investing in companies trading below their intrinsic value. International value fund managers rely on extensive research and valuation metrics to make informed investment decisions. 

The core objective is to capitalise on market inefficiencies, such as undervalued stocks or untapped global markets, with a focus on geographic diversification. 

Understanding International Value Funds 

International value funds follow a popular investment philosophy called value investing, developed by legendary investors such as Benjamin Graham and Warren Buffett. Value investing involves identifying undervalued stocks using fundamental analysis and holding them until their true worth is realised. 

Key principles include: 

• Identifying undervalued stocks: Companies trading below their intrinsic value are identified through valuation metrics like price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and dividend yields. 

• Focusing on long-term growth: It is about getting sustainable returns by targeting fundamentally strong companies. 

• Risk Management Emphasis: Fund managers assess individual companies, sectors, or regions. 

Distinctive Features of International Value Funds 

Compared to other global funds, international value funds have several unique characteristics: 

1. Geographical Focus: Only investment in non-domestic markets.
2. Value-Oriented Approach: Focus on finding undervalued stocks rather than diversification in general.
3. Stability Focus: They focus on mid to large-cap companies with stable financials and strong market positioning.

Benefits of International Value Funds 

International value funds have several advantages that make them an important addition to an investor’s portfolio. Below are the advantages in detail: 

1. Portfolio Diversification

International value funds give the investor geographical diversification as the investment is spread across various economies and sectors. This reduces dependence on a single market’s performance and thus reduces overexposure to risks associated with one economy or currency.  

For example: 

• Investing internationally balances an investor’s exposure to the global economic trend, helping reduce an investment’s volatility. 

• In addition, it also allows access to growth opportunities in regions with healthy market conditions. For instance, one could invest in developed markets like Europe or high-growth emerging markets in Asia. 

2. Opportunity for High Returns

The value-driven approach of international value funds capitalises on market inefficiencies. Fund managers notice undervalued stocks with companies with strong fundamentals that are overlooked by a broader market.  

• For instance, companies experiencing temporary setbacks have competitive advantages, and sound financials will offer attractive investment opportunities.  

• This strategy is particularly powerful during periods of global recovery because undervalued stocks frequently rebound strongly, delivering much better long-term returns than typical investment strategies. 

3. Currency Exposure through Gains

Investment in international markets brings about currency exposure, often impacting returns. A rise in the foreign currency value of an investment against that of the investor’s domestic currency usually increases returns while adding a second layer of profit. 

• Exposure to several currencies also provides an opportunity for protection against domestic currency devaluation risks; it thus adds more security when the currencies depreciate. 

4. Wider Economic Involvement

Investing globally diversified economic cycles for investors. For example: 

• Some industries, such as technology or renewable energy, may do well in international countries even when the domestic economy lags. 

• This opens up more opportunities for investors, especially in high-growth regions, which makes portfolios more robust. 

As such, international value funds are a great way to achieve financial stability and steady growth. 

Risk Factors in International Value Funds 

International value funds have many benefits but, of course, carry inherent risks. These risks must be understood before investment decisions are made. 

1. Currency Risk

Currency fluctuation is one of the biggest risks in international value funds. When an investor holds assets in a foreign currency, any depreciation in that currency relative to their home currency reduces returns.  

For example, suppose an international investment is made with the USD. A strengthening USD against the currency in question may reduce the value of the investment in USD terms, even though a stock price in its own currency has not moved at all. Conversely, it can magnify profits while being difficult to predict. 

2. Political and Economic Unrest

Global markets are sensitive to political and economic events. Geopolitical risks include trade disputes, changes in regulations, or political instability in some countries that affect the valuations of firms in other countries. Stock price crashes may occur due to sanctions or changes in policy of unknown nature in developing countries. 

3. Market Volatility

Compared to the domestic economy, which is mostly in developing countries’ economies, markets in global economies are very volatile. At times, prices might fluctuate wildly, at instances due to economic slowdowns, natural disasters, or just unexpected overnight changes in the commodity price, adversely affecting the performance of such a fund. 

4. Regulatory Accounting Difference

Every country has its own regulations and accountancy environment, which may make it difficult to judge a company’s financial situation correctly and increase the possibility of misjudging. 

5. Liquidity Constraints

Some international markets are illiquid, and a fund manager will find it challenging to buy or sell a large position without affecting the stock price. This may delay trade execution, and the results will not be ideal in times of volatility. 

Examples of International Value Funds 

Let’s take a look at two of the more prominent international value funds that reflect the traits and strategies of this type of investment: 

1. Dodge & Cox International Stock Fund (United States)

The Dodge & Cox International Stock Fund is a strong international value strategy. This US-based fund invests mainly in the undervalued equities of non-US firms operating in various industries and regions. The fund uses a disciplined and research-based approach to identify high-potential stocks that trade at a discount to intrinsic value.  

For example, it has previously focused on undervalued technology companies in Europe and providers of financial services in Asia, targeting companies with stable balance sheets and competitive strength. Its long-term approach allows it to capture global market inefficiencies while diversifying sectorally and geographically. 

2. LionGlobal Disruptive Innovation Fund (Singapore)

The LionGlobal Disruptive Innovation Fund is a Singapore-based international value fund that offers exposure to undervalued companies benefiting from disruptive trends worldwide. While the fund is mainly growth-oriented, it does include value-based metrics to find overlooked opportunities in sectors like healthcare and renewable energy.  

For instance, it invests in the underpriced medical technology companies of North America and the renewable energy firms in Europe, exposing it to transformative global trends. The fund runs on sustainable growth by balancing high-return opportunities with risk management. 

These examples reflect other markets in which international value funds function and provide an avenue to investors who can afford undervalued stocks even while managing risks strategically. 

Frequently Asked Questions