International Equity Funds

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 03, 2023

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What Are International Equity Funds?

International equity funds are mutual funds or exchange-traded funds (ETFs) that invest in stocks of companies located in various countries worldwide.

These funds can provide access to a wide range of global investment opportunities and reduce the impact of domestic market fluctuations.

By including international equities in a portfolio, investors can spread their risk across various markets and sectors.

Diversification can help mitigate losses during market downturns and potentially enhance long-term investment returns.

Types of International Equity Funds

There are various types of international equity funds, each offering different levels of diversification and exposure to specific regions or sectors.

Global Equity Funds

These funds invest in companies from both developed and emerging markets worldwide. They offer investors the broadest level of diversification among international equity funds.

International Equity Funds (Ex-US)

Investing primarily in non-U.S. companies, these funds provide diversification for U.S. investors by focusing on developed and emerging markets outside of the United States.

Regional Equity Funds

These funds concentrate on specific geographical regions, such as Europe, Asia, or Latin America. They allow investors to target particular areas with potential for growth or to hedge against regional risks.

Country-Specific Equity Funds

Country-specific funds invest in stocks from a single country, giving investors concentrated exposure to that market. These funds can offer higher returns but may come with increased risk due to limited diversification.

Emerging Market Equity Funds

Emerging market funds invest in companies from developing countries with high growth potential. While they can provide significant returns, they also carry higher risk due to political and economic instability.

Sector-Based International Equity Funds

These funds focus on specific industry sectors, such as technology or healthcare, across multiple countries. They allow investors to target global opportunities in sectors they believe will outperform.

Advantages and Disadvantages of International Equity Funds

International equity funds come with their own set of benefits and risks, which investors must consider when constructing their portfolios.

Diversification Benefits

International equity funds help investors diversify their portfolios by spreading risk across various countries and industries. This can reduce the impact of market downturns and potentially enhance long-term returns.

Access to Growth Opportunities

Investing in international equities exposes investors to new growth opportunities outside of their domestic market. This can lead to higher returns, particularly in rapidly growing emerging markets.

Exposure to Different Economic Cycles

Different countries experience economic cycles at varying times, which means that international equities can help balance a portfolio during domestic market downturns. This exposure can provide a cushion during periods of economic stress.

Currency Diversification

International equity funds provide exposure to foreign currencies, which can offer additional diversification benefits. However, currency fluctuations can also add an element of risk to these investments.

Risks and Challenges

Investing in international equity funds presents unique risks, including political and economic instability, currency fluctuations, and regulatory differences. Additionally, investors may face liquidity and transaction cost challenges when investing in these funds.

Advantages and Disadvantages of International Equity Funds

Performance Evaluation and Benchmarking

Evaluating the performance of international equity funds requires comparing them to relevant benchmarks and understanding the factors that affect their performance.

Commonly Used Benchmarks

Popular benchmarks for international equity funds include the MSCI World Index, MSCI EAFE Index, and MSCI Emerging Markets Index. These indices serve as a reference point for fund performance and risk assessment.

Factors Affecting Performance

Performance of international equity funds can be influenced by factors such as fund management style, currency movements, and geopolitical events. Understanding these factors can help investors make more informed investment decisions.

Strategies for Investing in International Equity Funds

Investors can employ various strategies when investing in international equity funds, such as choosing between active and passive management, using dollar-cost averaging, and implementing risk management techniques.

Active vs. Passive Management

Investors can choose between actively managed funds, where fund managers select stocks based on research and analysis, or passively managed funds, which replicate a specific index.

Actively managed funds may offer higher returns but come with higher fees, while passive funds generally have lower costs.

Dollar-Cost Averaging

Dollar-cost averaging involves investing a fixed amount at regular intervals, regardless of market conditions. This strategy can help investors avoid the pitfalls of market timing and reduce the impact of short-term market fluctuations.

Risk Management Techniques

Investors can implement various risk management techniques, such as diversifying their portfolio across multiple international equity funds, rebalancing periodically, and considering their risk tolerance before investing.

Tax Implications and Regulatory Considerations

When investing in international equity funds, it's essential to be aware of the tax implications and regulatory environment.

Taxation of International Investments

Investors in international equity funds may be subject to taxes on interest, dividends, and capital gains. Understanding the tax treatment of these investments can help investors make informed decisions and minimize tax liabilities.

Foreign Tax Credits

Investors may be eligible for foreign tax credits to offset taxes paid on international investments. This can help reduce the overall tax burden and enhance after-tax returns.

Regulatory Environment and Compliance

Investing in international equity funds requires navigating the regulatory environment of various countries. Understanding and complying with these regulations is essential to minimize risks and ensure smooth investment operations.


International equity funds serve as a crucial component for investors seeking to construct a well-diversified investment portfolio.

By allocating investments across various countries and sectors, these funds can help mitigate risk, enhance long-term returns, and minimize the impact of market downturns.

Furthermore, investing in international equity funds allows investors to access global growth opportunities and hedge against regional risks.

Investors can choose from a wide range of international equity fund types, each offering different levels of diversification and exposure to specific regions, sectors, or markets.

By incorporating international equity funds into their investment strategy, investors can achieve a globally diversified portfolio that caters to their unique risk tolerance and investment objectives.

When investing in international equity funds, it is crucial for investors to understand the advantages and disadvantages associated with them, as well as the tax implications and regulatory considerations.

By being well-informed about these aspects, investors can make better investment decisions and navigate the complex world of international equity funds more effectively.

International Equity Funds FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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