We tend to view these two terms as meaning the same thing, but in the context of mutual fund investing, they carry different meanings. Not understanding what makes these types of mutual funds different could have a huge impact on your overall portfolio.

While both global and international mutual funds have to do with investing in markets outside of the U.S., they don’t both go about it in the same way. You might have come across a fund with a name such as “Europe ex Britain” and wondered why it was named in such a way. It’s not just to get your attention, these types of funds are telling you something specific about the nature of the mutual fund that you need to know before investing. Buying a fund without doing due diligence could result in taking on more risk than you wanted and leave you vulnerable to unexpected losses.

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Global mutual funds are arguably the simplest type of geographically specific fund and invest all around the world, including your home country. By spreading investments across multiple countries, investors are able to effectively hedge against regional-specific risks, while keeping their home country in the mix keeps diversification at an optimum level.

Global mutual funds are best used when the overall global economy is doing well. Even if a select country or region lags, the broad asset allocation among many countries minimizes risk and maximizes profitable investment areas. Investing globally in an unbiased manner can help investors gain exposure to markets that they might not otherwise be able to invest in and eliminates the need to have specific knowledge of certain markets in order to be successful.

An example of a global fund is T. Rowe Price Global Growth Stock Fund (RPGEX), which has a roughly 50-50% split between U.S. stocks and foreign stock holdings.

To learn more about other funds by T. Rowe Price, check out the fund company page here.

International funds are different than global funds in that they exclude certain geographic regions from their portfolio – usually the investor’s home country. They may or may not be labeled with names like ex-U.S. and invest in foreign holdings exclusively.

These types of funds are also more diverse than global funds and come in many different packages. Some international funds may be broad investments that simply exclude one country, but many more are region-specific such as Europe or Asia. They may also differentiate between developed economies and emerging markets, allowing investors to customize their portfolio to gain access to particular markets. Some funds may even specify certain exclusions other than the U.S., such as a fund that invests in Asia but doesn’t include Japan.

One example of an international fund is T. Rowe Price Emerging Markets Stock Fund (PRMSX), which has more than 97% of its assets in foreign emerging markets ranging from Latin American to Europe to Asia.

Investing overseas or in foreign markets is difficult for everyday investors to do. Many markets are virtually inaccessible to anything less than institutional money, while options and knowledge of foreign publicly traded companies are limited. The best way to gain exposure is by investing in global or international mutual funds.

Investors who want to have a broad global exposure without specifying a particular geographic area should consider a global mutual fund. On the other hand, investors that have a pre-built domestic portfolio may consider adding an international mutual fund to their portfolio rather than a global one to diversify into foreign markets without overexposing themselves to domestic investments.

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Investing in markets outside of the U.S. can be a good way to diversify against domestic risks but comes with its own risks as well. Foreign exchange risks are usually the biggest factor as currencies fluctuate relative to the U.S. dollar. Geopolitical risks are also higher as many countries have different accounting and regulation standards. Industries may be nationalized with the government taking control over the means of production and new systems may be put into place that harm industries. Investors should take caution to stay diversified and avoid overexposure to any one region.

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