How Are Global and International Funds Different?

In the English language, "global" and "international" tend to be used interchangeably—hence the confusion in the investing world when we are told that global and international funds have completely different investment goals and provide investors with different kinds of investing opportunities. It is up to the investor to perform due diligence and understand the types of investments each of these types of funds will contain. 

Global funds consist of securities in all parts of the world, including the country in which you reside. Think of a globe, which displays every single country. Global funds are chosen primarily by investors who wish to diversify against country-specific risk without excluding their own country. Such investors may already 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 foreign investments.

The mix of domestic and foreign investments works in your favor if the global economy is doing well. News in one country might drive that market down, but other countries may be doing well and see their markets rise. Be aware that not all countries regulate their markets the ways yours does. There can be significant differences in the kinds of protections investments receive. In fact, some countries have been known to take over entire industries and have the government run them. This can affect your investments. 

International funds consist of securities from all countries except the investor's home country. These funds provide diversification outside of the investor's domestic investments. If an investor currently holds a portfolio consisting mainly of domestic investments, he or she may choose to diversify against country-specific risk and purchase an international fund. Alternatively, a speculator may invest in an international fund because he or she anticipates 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. Just because a fund is called "international," don't assume it invests in every country. Check to see what the focus of each particular international fund is. Many specialize in specific regions.

As an individual investor, you cannot buy mutual funds that are based in another country. Regulations prohibit this in every country that has mutual funds. So, to be diversified in a foreign country, you have to buy a mutual fund in your own country that buys foreign securities. While this allows you to rely on the expertise of a professional money manager who works for the fund, it is no excuse to invest blindly. Make sure you understand the risks, the type of investment, and the tax implications.

Choosing to go with a global fund gives you some domestic exposure, whereas international funds do not. If you are already invested in securities in your country, examine the holdings of the global fund you are interested in to make sure you are not duplicating investments. If you are, your best bet could be an international fund. (See also: Mutual Fund Basics.)