Mutual Funds: "Global" vs "International" funds – there is a difference!

I remember the first time I looked at investing in mutual funds was when I was 15 years old.  Upon getting my first job (McDonald’s), my father made me setup an automatic contribution to a mutual fund – my small payment of $25 per 2 weeks would get sent to the mutual fund company the day after my pay cheque was deposited. I also remember looking at all the different booklets and informational brochures from that company and how there were about 50 different funds to choose from.  At that point, I had no idea that some were high risk and some were low risk and some were somewhere in-between. I also remember seeing some really long names for these various funds. Most of all, I remember being confused!

Mutual_fund.jpgYou can figure out a lot about a mutual fund based on the name it has. For example, a fund called the "U.S. Large Cap Value" fund will primarily invest in US companies with a large capitalization (meaning the companies are worth billions upon billions and hence are very recognizable names) that fit a "value investment criteria" which means that the fund manager is looking for stocks that he/she thinks are trading  below what the companies are actually worth (in a nutshell).

In any case, one distinction that is not so apparent is when a fund is called a "Global" fund versus an "International" fund. There is a distinct difference in that:

Global funds invest all over the world INCLUDING the home country of the mutual fund.

International funds invest all over the world EXCLUDING the home country of the mutual fund.

So for example, the XYZ Global Opportunities fund would invest all over the world, including the country you reside in. The ABC International Value fund would invest all over the world but would not hold any investments found in your home country.

This can be an important distinction to make when choosing the geographical allocation of your investments. If you hold a significant portion of assets in a Canadian Equity Fund and want to get foreign exposure you may not want to buy a Global fund (since you will have overlapping investments in Canada), but may instead want to purchase an "International" fund – which for Canadians will not hold Canadian investments.

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Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • Traciatim

    This is some excellent information to have. I probably would have never realized this on my own, and to my knowledge I haven’t seen this broken down in any books I’ve read. Thanks for the tip.

  • Preet

    You’re welcome! It might also be worth pointing out that international funds would be better to own (if there is an equivalent global fund) from a cost point of view since the higher MER’s attributed to funds with foreign content would be applied to the Canadian investments.

    My post: Balanced Mutual Funds Should Be Illegal goes through the math on the concept (except applied to holding equity and fixed income mutual funds versus holding just a balanced fund).