An international fund is a fund that can invest in companies located anywhere 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.

Breaking Down International Fund

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 Countries

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 international category, Vanguard offers a variety of debt and equity funds for investors. In 2017, the Emerging Markets Select Stock Fund was the category’s top performer, with a 32% gain. The Fund is actively managed and invests in stocks from the BRIC countries.