What Is an International Fund?
An international fund is a mutual fund that can invest in companies outside of the investor's country of residence. For U.S. citizens, investing in companies outside the country can help diversify, balance risk, and avoid missing out on global opportunities. International funds can include developed, emerging market investments in various asset classes and offer varying levels of risk and return.
Key Takeaways
- International funds are mutual funds or ETFs that invest in companies outside the investor's country of origin.
- Within emerging markets, investors will find funds that represent leading sub-segments such as the BRICS nations.
- Investing in international funds comes with the risk of currency volatility.
Equity Funds
Risks and potential returns will vary by country. Developed market countries commonly offer the least risk. Fidelity's Diversified International Fund (FDIVX) include holdings of Hitachi from Japan and Nestle from Switzerland.
The emerging market countries may offer investors significant gains with higher risks since the economies and infrastructures of these countries are growing but volatile. Within emerging markets, investors will find many funds representing leading sub-segments such as the BRICS (Brazil, Russia, India, China, and South Africa). The Franklin FTSE China ETF (FLCH) includes the holdings of Chinese companies Alibaba and Baidu. By 2024, this bloc of countries will add Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates.
Debt and Fixed-Income Funds
International funds are managed to various asset classes. Debt and equity funds are the two most common, providing a broad universe for investment. Conservative U.S. investors can invest in government debt or corporate debt offerings from variouscountries outside the U.S. International and global bond funds are mutual funds that invest in companies globally, including those based in emerging markets. The Hartford World Bond Fund (HWDIX) includes Treasury Bills and Government Bonds from Norway, Korea, and Australia.
Risks of International Investing
International fund investing can offer higher returns, but usually with more risk. Some factors that can increase risk include:
- Currency volatility can affect the real returns of an investor’s portfolio
- Changing economies require consistent due diligence
- Changing International regulations and legislation
What Is the Difference Between an International Fund and a Global Fund?
International funds are distinct from global funds, which invest in companies around the world and in the country where the fund's investors are located.
How Can International Funds Benefit an Investor's Portfolio?
Investors who own both international and domestic securities can help level out some of the volatility in a portfolio.
Can U.S. Investors Buy Individual Stocks on Foreign Markets?
An investor's U.S. brokerage account must give them access to foreign exchanges to buy on foreign markets.
The Bottom Line
International funds are mutual funds or ETFs that may include debt or equity assets. Investors can choose these funds that invest in countries outside their country. Investing in international funds comes with the risk of currency volatility and changing economic or political environments, especially in emerging markets.
