International Fund: Definition, Examples & Why It Matters

Snapshot

An international fund is a pooled investment vehicle that invests primarily in securities outside of the investor’s home country, offering global diversification and access to foreign markets.

An international fund is a type of mutual fund or exchange-traded fund (ETF) that focuses its investments on assets outside of the investor’s domestic market. This fund typically invests in stocks, bonds, or other securities issued by companies or governments based in foreign countries. The primary goal of an international fund is to provide geographic diversification beyond national borders, allowing investors to capture growth opportunities and income from various international economies. International funds differ from global funds in that international funds exclude investments from the investor’s home country, while global funds may include domestic holdings. International funds can target developed markets, emerging markets, or a combination thereof, each carrying distinct risk and return profiles. These funds are managed by professional portfolio managers who research and select assets based on economic conditions, currency factors, political environment, and market potential in foreign regions. In wealth management and family office contexts, international funds provide access to markets that may not be easily accessible directly due to regulatory, currency, or operational barriers. They are an efficient way to diversify portfolios, reduce home country bias, and potentially enhance risk-adjusted returns through international exposure.

Incorporating international funds into a portfolio significantly impacts investment strategy by broadening geographic exposure, which can reduce overall portfolio volatility through diversification. Exposure to different economic cycles, currencies, and market dynamics can mitigate the risks inherent in a single-country portfolio. For family offices, this diversification is crucial to navigate global uncertainties and seize growth from rising economies. Additionally, international funds introduce considerations around tax implications and reporting requirements, as income and capital gains generated may be subject to foreign taxes and complex withholding rules. Effective management and due diligence are necessary to optimize tax efficiency and comply with cross-border regulations. Furthermore, governance around currency risk, geopolitical risk, and regulatory differences must be integrated into the family office’s overall investment oversight framework. Understanding these factors ensures that international funds align with the family's risk tolerance and long-term financial goals.

Suppose a family office has a domestic portfolio invested entirely in U.S. equities. They allocate $1 million into an international fund specializing in European and Asian markets. This fund holds a diversified basket of foreign stocks with an expected annual return of 7% and a standard deviation of 15%, compared to the domestic portfolio’s expected return of 8% with a standard deviation of 18%. By adding the international fund, the overall portfolio may see reduced volatility due to low correlation between U.S. and foreign markets, enhancing diversification and potentially improving risk-adjusted returns.