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What is an 'International ETF'

An international exchange traded fund (ETF) is any ETF that invests in foreign-based securities. The focus may be global, regional or on a specific country.

BREAKING DOWN 'International ETF'

International ETFs are invested passively around an underlying index, but the index may vary substantially from one fund manager to the next. Some funds, especially those with a wide global footprint or those that invest in countries with advanced economies, can provide strong diversification by investing in hundreds of companies.

ETFs that invest in a single foreign country may carry higher risks than international ETFs that spread their investments among many countries. If a single country undergoes a major recession or other financial hardship, an ETF that only invests in securities based there could have a major performance shortfall. International ETFs are increasingly polular for U.S. investors amid strong global growth. Advances in globalization and financial regulation have opened more financial markets to outside investment. In general, expense ratios for international ETFs tend to be higher than the averages because of the higher costs to invest abroad.

For U.S. investors, international funds can include developed, emerging or frontier market investments in a range of asset classes. These funds can offer varying levels of risk and return. In addition to country-specific considerations, international funds managed to various asset classes. Debt and equity funds are the two most common, providing a broad universe for investment. U.S. investors seeking to take more conservative positions can invest in government or corporate debt offerings. Equity funds offer diversified portfolios of stock investments that can be managed to a variety of objectives. Asset allocation funds offering a mix of debt and equity can provide for more balanced investments with the opportunity to invest in targeted regions of the world.

Exchange traded funds

An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

By owning an ETF, investors get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors have to pay the same commission to a broker that they'd pay on any regular order.

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