Country Funds 

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Country Funds

Country funds specialize in the securities of a particular country. Country funds can be open-end or closed-end, but most country funds are closed-end. Examples of these are the Korea fund, the Italy fund, the Thai fund, the Japan fund, and ASA, Ltd., which specializes in South African gold mining companies. Many of the securities in these portfolios are thinly traded stocks, which points to an advantage of choosing a closed-end fund over an open-end country fund. With closed-end funds, portfolio managers do not have to sell stocks in their portfolios to meet the redemption needs of their shareholders. The number of shares is fixed at the initial offering, and after they are all sold, they trade on the exchange or the OTC market. Open-end portfolio managers have to sell some of their portfolio holdings to raise cash to buy back shares from shareholders at NAVs.

Closed-end funds could trade at large discounts or premiums to their NAVs depending on the supply of and demand for their stocks and other factors. Potential investors in closed-end funds should be aware of their NAVs so that they do not end up buying a fund that is trading at a healthy premium over the NAV. Country funds make it very easy for investors to invest in markets about which they have very little knowledge and information. For instance, stock markets in Turkey, India, New Zealand, South Africa, and Singapore have outperformed many other markets. For investors who do not have the time or inclination to research these markets for promising individual stocks, there is the convenience of a county fund. In selecting country funds, investors still need to be aware of the country’s potential economic outlook, political stability, and exchange rates. Country funds are specialized to those countries and, as a result, may be quite volatile.

When the Japanese stock market rose to its 10-year high, Japanese country funds were trading at large premiums to their NAVs. Then the Japanese stock market plummeted, and Japanese country funds traded at deep discounts to their NAVs.

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