Investors have entrusted the American Funds EuroPacific Growth Fund (RERGX -1.71%) with more assets than any other foreign or international stock fund. The fund invests in companies in Europe and the Pacific Basin, generally investing in large cap growth stocks. Underlying its success is the fact that it is one of the least-expensive actively managed stock funds, as its class R-6 shares carry an annual expense ratio of just 0.50%. Here's what you need to know about American Funds' premier foreign stock fund.

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1. It's a developed market large cap fund

When investors think of foreign stock funds, many think of emerging markets that promise high economic growth and the potential for higher returns. But keep in mind that this fund is not an emerging markets fund by any stretch, as the majority of its assets are in developed markets in Europe and the Pacific Basin.

Only two of its top-10 country exposures are emerging markets, with the substantial majority of capital invested in the United Kingdom and Japan. Combined, these two countries make up nearly a quarter of its total assets. India and China account for about 14%, comparatively.

The fund's size and focus on developed markets also make it a predominately large cap fund. Note that mid- and small-cap stocks make up less than 6% of its assets, according to data provider Morningstar.

2. Its country exposures closely mirror a common stock index

Though the fund is actively managed by a team of professionals, the fund does tend to hug its benchmark index for geographic diversification. Notably, the fund's regional allocations do not differ all that much from the MSCI All Country World Index ex-USA, which should be considered its benchmark.

Although the fund tends to mirror its benchmark in terms of its allocations to individual countries, it differs on stock selection within each country. Active stock picking seems to have done investors well. The fund beat the benchmark over the most recent 3-, 5-, and 10-year periods at the time of writing.

Alternatives are numerous. The iShares MSCI ACWI ex U.S. ETF (ACWX -0.48%) provides an opportunity to investors to skip active management in favor of lower fees. iShares' ETF carries an annual expense ratio of 0.30%, edging out the 0.50% expense ratio of the least-expensive EuroPacific Growth Fund R-6 share class.

3. It carries a lot of cash

This is neither good nor necessarily bad, but it is something to be aware of: American Funds' managers have no issue with keeping a significant amount of fund assets in cash. (Famed investors including Warren Buffett and Seth Klarman have handily beaten the market, despite holding a significant percentage of their assets in cash for long periods of time.)

The fund's cash position was higher in 2016 than in any of the 5 years prior. In bull markets, cash can be a drag on performance. In bear markets, managers can use their dry powder to capitalize on bargains. But investors should be aware that the fund is never 100% fully invested in stocks as are its indexed competitors like the aforementioned iShares ETF.

Is it right for your portfolio?

The fund and its benchmark index give investors diversified exposure to developed foreign markets, which should be part of any truly diversified portfolio. The decision thus comes down to fees and tax considerations.

Investors who will hold their foreign stock funds in a taxable account may be better suited for ETFs, which are much more tax-efficient than actively managed mutual funds. However, tax issues are of little consequence to the investor who intends to own foreign funds in a retirement account.

Thus, the ultimate decision for tax-advantaged accounts is whether or not it makes sense to pay an additional 0.20% in annual expenses for the low-cost R-6 mutual fund shares compared to an indexed ETF that offers substantially similar exposure. (If your only choice is the high-fee American Funds share classes, the decision is clearly tilted toward index ETFs.) Given its record, paying a slight premium in fees for the potential for outperformance is hardly an irresponsible gamble.