Investing directly in international markets can be very expensive, as transaction fees are generally higher than in the United States. Additionally, smaller foreign markets often charge a higher premium when trading stocks. Other considerations are lack of liquidity and information in some foreign markets, different market operations, and withholding taxes. It is therefore recommendable that the novice investor invests in either global or international mutual funds. Although fund companies also pay transaction and exchange fees, they get better rates because of larger transaction sizes. Finally, international fund managers have the expertise it takes to maneuver through foreign economic, political, and currency trends. Also, fund managers have the ability to hedge against currency risks, thereby "insuring" part of your investment.Thomas M. Tarnowski, Senior Business Analyst, Global Investment Banking Division, Citigroup, Inc.—Salomon Smith Barney, New York, NY, and London, UK
This type of mutual fund invests in stocks, bonds, or cash equivalents that are traded in overseas markets, or in indexes that track international markets.
Like other funds, international funds have investment objectives and strategies, and pose some level of risk, such as the risk that currency fluctuations may greatly affect the fund's value.
Some international funds focus on countries with established economies, some on emerging markets, and some on a mix of the two.
US investors may buy funds that invest in other markets to diversify their portfolios, since owning a fund is usually simpler than investing in individual securities abroad.
A different group of funds, called global or world funds, also invest in overseas markets but typically keep a substantial portion of their portfolios in US securities.