With international stock markets comprising nearly two-thirds of the world’s capitalization, a broad range of investment opportunities exist outside the borders of the U.S.¹
For investors who are looking to diversify their mutual fund portfolio with exposure to companies located outside the U.S., there exist two basic choices: A global mutual fund or an international mutual fund.²,³
By definition, international funds invest in non-U.S. markets, while global funds may invest in U.S. stocks alongside non-U.S. stocks.
Make a Choice
The definition may seem clear, but what may seem less clear is why an investor might select one over the other.
An investor may select a global fund in order to give her portfolio manager the latitude to move the fund’s investments between non-U.S. markets and the U.S. market. This may give the manager the flexibility to take advantage of shifting opportunities that could be present at any given moment.
By investing in a global fund, the challenge for the investor is that he may not know at any point in time his total exposure to the U.S. market, within the context of his overall portfolio.
An Inside Look
Some investors choose to manage their risk by setting the desired asset allocation for their portfolio and then identifying funds that are within those asset classes. For these investors, an international fund may make more sense, since it allows them to maintain a greater adherence to their desired domestic/international stock allocation.
Keep in mind that asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
As you consider a global or an international fund, you should also be aware of the fund’s approach to the inherent currency risks. Some funds choose to engage in strategies that may mitigate the effects of currency fluctuations, while others consider currency movements—up and down—to be an element of portfolio performance.
- Business Insider, November 6, 2016
- Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
- International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Rutledge Financial Partners, LLC and Independent Advisor Alliance are separate entities from LPL Financial.