facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
International vs. Global Funds: Investors Need to Know the Difference Thumbnail

International vs. Global Funds: Investors Need to Know the Difference

Diversification is a well-known strategy to help reduce the risk of investing. And with international stock markets accounting for about 44 percent of the world’s capitalization, a broad range of investment opportunities exist outside the borders of the U.S.1

Two common investment opportunities that exist outside of the United States include international funds and global funds. But what’s the difference between the two? 

Looking at each fund’s definition, advantages and disadvantages, we’ll break down how international and global funds work to help you better understand your investment options. 

International Funds

International funds only invest in markets outside the United States. For investors, the biggest advantage an international fund provides is its ability to control the allocation of national and global stocks.

This control allows investors in international funds to separate investments in U.S. markets from investments in non-U.S. markets, giving greater control of their overall investment portfolio, as opposed to global funds which provide no separation. 

Global Funds

Global funds invest in global stock markets without excluding U.S.-based stocks. One advantage created by a global fund is its ability to capitalize on the shifts in relative opportunities these markets may present at any given moment. 

However, by consolidating into one fund, investors have reduced visibility and control over their overall portfolio’s separation between domestic and international stocks. 

Advantages and Disadvantages

International funds and global funds each have some pros and cons that investors should be aware of.

Shared Diversification

Depending on how a global fund is managed, and whether an investor has other investments, there could be overlaps in domestic markets. 

For example, an individual investor could have stock in a domestic company, then choose to invest in a global fund to access global markets. This fund may then choose to invest in the same stock the investor already owns. This, in turn, limits diversification, which may be one of the reasons for investing in a global fund in the first place. 

Such an investor may opt for an international fund in place of a global fund to reduce the chance of overlap while still accessing international markets. With this in mind, it’s important to know that asset allocation is an approach to help manage investment risk and is not a guarantee against investment loss.

Currency Risks

Investors should also be aware of their chosen fund’s approach to the inherent currency risks of international and global funds. 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.

Tax Implications

Also, it’s important to be aware that both global funds and international funds may face different taxes depending on the location of the fund. For example, funds located outside of the United States could be considered a Passive Foreign Investment Company, which processes taxes under a different set of rules, when compared to U.S.-based international or global funds.2 

Active vs. Passive

The nuances of non-U.S. markets can be difficult for average investors to understand, let alone time-consuming. Depending on the area of the market you are investing in, you can choose from either an actively-managed mutual fund or a passively managed exchange-traded fund(ETF). Mutual funds will generally employ a fund manager to carry out the objectives of the fund, which usually involves a greater degree of due diligence and research, in addition to higher cost. Conversely, a passive ETF will rely on diversification, low cost, and historical market data to achieve the correct market exposure. Due to the complexity and lack of readily available data in some markets, a prudent and experienced mutual fund manager has the potential to outperform its passively-managed ETF counterpart. However, working closely with your Financial Planner to evaluate your portfolio is the best way to find which investment combination is best for you.

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members. 

  1. https://www.statista.com/statistics/710680/global-stock-markets-by-country/
  2. https://www.irs.gov/forms-pubs/about-form-8621


This content is developed from sources believed to be providing accurate information. 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. 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. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Evergreen Financial Group be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided herein, even if Evergreen Financial Group or a Evergreen Financial Group authorized representative has been advised of the possibility of such damages. Information contained herein should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.