In casual conversation, the terms “global” and “international” tend to be used interchangeably. Hence the confusion for some investors when they learn that global and international mutual funds (and exchange-traded-funds (ETFs)) each focus their international investing differently.
These funds have different investment goals and provide investors with different kinds of investing opportunities.
It is up to an investor to understand the types of securities these funds contain.
Key Takeaways
- In investing, the terms “global” and “international” refer to different investment funds.
- A global fund invests in companies and securities from all over the world, including the U.S.
- An international fund invests in companies and securities from all over the world, except the U.S.
- Countries regulate their investment funds and their securities markets differently, which means the potential for less or more protections for investors.
- Investors should know how much exposure to domestic securities they already have in their portfolio before choosing a global or international fund.
Global Funds
Global funds invest in securities from all parts of the world, including the country in which you reside. Think of a globe, which displays every single country.
That means that you can get exposure to developed and emerging markets as well as growth opportunities in your home country. The level of exposure to each area depends on the goals of a particular fund.
Global funds are chosen primarily by investors who wish to diversify their portfolios to protect against country-specific risk, without excluding investments available in their own country.
Such investors may have a lower-than-desired concentration of domestic investments or may not want to take on the high level of sovereign risk involved in making individual foreign investments.
A mix of domestic and foreign investments works in your favor if the global economy is doing well. News in one country might drive its market down, but other countries may be doing well and see their markets rise.
Review the fund information carefully before investing so you clearly understand which countries’ securities a fund invests in.
Be aware that not all countries regulate their investment funds or their securities markets in the same way. There may be significant differences in the protections that investors receive.
In fact, some countries have been known to take over entire industries and have the government run them. This potentially can affect the safety and value of your foreign investments.
Note
Investors should consider international investing in general because of the growth and diversification opportunities it presents. Owning an international or global mutual fund or ETF also can reduce the volatility risk associated with a purely domestic portfolio.
International Funds
International funds invest in securities from all countries except the investor’s home country. These funds provide exposure to developed and emerging markets worldwide that can complement the domestic exposure already inherent in an investor’s portfolio.
If an investor currently holds a portfolio consisting mainly of domestic investments, they may choose to add more return opportunities by purchasing an international fund. This would also allow them to diversify against country-specific risk.
Alternatively, a speculator may invest in an international fund because they anticipate a rise in a particular foreign market.
An international fund can invest in solid markets of developed countries, or it might invest in emerging markets, which are less mature and carry more risk. Typically, the higher the risk the greater the potential return.
Just because a fund is called international, don’t assume it invests in every country. Do your due diligence to learn what the focus of a particular international fund is. Many specialize in specific areas and should be categorized as country-specific or region-specific.
Investing in Funds Established Abroad
As an individual investor, you cannot buy mutual funds that were established and registered in another country. Regulations prohibit this in every country that has mutual funds.
So, to diversify in foreign securities, you have to buy a mutual fund or ETF in your own country that invests in them. This allows you to rely on the experience and expertise of a professional money manager who works for the fund.
However, that’s no excuse to invest blindly. Make sure you understand the risks, the type of investment, and the tax implications. Read all information about a particular global or international fund before investing.
What Is the Largest U.S. International ETF?
Measured by assets under management (AUM) of $76.9 billion, it is the Vanguard Total International Stock ETF, as of October 31, 2024.
Is a Global Equity Fund a Good Investment?
For investors who seek exposure to foreign securities all over the world, as well as investments in their own countries, it can be. However, if you already have a substantial position in domestic stocks, consider an international equity ETF or mutual fund. It does not invest in securities of the country in which it is established and registered.
How Does International Investing Help if Those Markets Are Down?
International investing can be valuable to investors for the exposure to additional sources of growth it offers and for the role it can play in the reduction of risk through diversification. You don’t have all your eggs in one basket. If you only had domestic securities in your portfolio and that market crashed, the value of your entire portfolio would drop. By spreading your money across domestic and international investments, your portfolio is protected from drops in the value of certain investments by increases in the value of others.
The Bottom Line
Global funds give investors exposure to securities in their own country as well as countries throughout the world. International funds do not offer exposure to domestic securities.
Both types of fund provide opportunities for financial returns from foreign securities as well as the benefits of diversification into many different markets. However, you must be sure to determine the exposure you already have to companies in your own country before deciding on which type of fund to buy.