An international equity fund is a type of mutual fund which invests a large portion of its capital in the stock of foreign companies. Like all mutual funds, this type of fund gathers together the capital of various investors and then purchases a variety of securities, allowing investors to profit when the fund's assets rise in value. The value of an international equity fund is that it allows an investor to be exposed to a vast array of international companies, providing excellent portfolio diversification. Investors also have to be aware of the risk involved with companies in emerging markets and of the possibility that foreign currency values will affect the profits from an international fund.
When investors partake in mutual funds, they often do so to benefit from the diversification that such funds provide. This diversification comes from the fact that the funds invest in many different securities, meaning that the fund itself can hardly be damaged by the poor performance of one or even a few securities. That diversification increases significantly with an international equity fund, which invests in companies around the world.
Investors generally have to make significant capital commitments to participate in an international equity fund. The fund is managed by an investment professional who takes the capital of all of the various investors and then invests it the stock of companies from various countries. It is important to note that the fund may also invest a portion of its funds in stocks from the fund's home country, although this portion of the fund's portfolio is generally subordinate to the international stocks included.
The benefit of investing in an international equity fund is that it allows an investor access to parts of the world that he might otherwise not be able to reach. Different international funds may have different strategies that an investor can assess. For example, some international funds may focus on small companies that are just starting out, while others may deal primarily with more established middle-market companies.
No matter what type of international equity fund the investor chooses, he must also be aware of some of the drawbacks. Since international funds may invest in companies from developing countries with emerging markets, there is generally a much greater risk involved than what might be attached to domestic funds. In addition, ever-changing foreign exchange rates can play havoc with the profit margin of funds dealing with international stocks. For those reasons, investors should take care to research the track record of any international fund so they can decide if the benefits are worth the risks.