What Is an International Fund?
An international fund is a mutual fund that can invest in companies located anywhere in the world outside of its investors' country of residence. International funds differ from global funds, which can invest in companies from any country in the world. International funds may also be referred to as foreign funds.
How an International Fund Works
International funds can help investors to broaden their investment horizons, resulting in a higher potential for return. 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.
- International funds are mutual funds that invest in companies based outside of the country where the fund's investors are based.
- International funds are distinct from global funds, which are able to invest in companies around the world, and in the country in which the fund's investors are located.
- International funds, particularly those that invest in emerging markets or other targeted areas, have become increasingly popular in recent years, as investors seek diversification.
Risks and potential returns will vary by country. Developed market countries are considered to offer the least risk, as they contain the world’s most advanced economies. The emerging market countries offer investors some significant gains with higher risks since the economies and infrastructures of these countries are growing but volatile. Within the emerging markets, investors will find many funds representing leading sub-segments such as the BRICs (Brazil, Russia, India, and China) and Asia ex-Japan. Frontier and other undeveloped countries will have the highest risk with some potential for return as innovations develop.
Debt and Equity Funds
In addition to country-specific considerations, investors will also find 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 bets can invest in government debt, or corporate debt offerings from various countries outside the U.S. 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.
International Fund Investing
International fund investing can offer higher returns, but it usually also comes with more risk. As a higher risk investment, it is generally best used as an alternative to long-term core holdings. Some factors that can increase risk include currency and changing economies. Currency is generally a concern when investing in any international investment, as currency volatility can affect the real returns of an investor’s portfolio. Changing economies are also a factor and require consistent due diligence, as changing regulations, and legislation can affect the economic trends of international market countries.
In the popular diversified emerging markets category, the funds that have seen the highest returns through 2020 include Artisan Developing World Fund, PGIM Jennison Emerging Markets Equity Fund, and Calamos Evolving World Growth Fund.