International Fund: What It is, How It Works, Investing

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.

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 various countries 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 

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.