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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 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.
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.
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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