Smart investors know that investing in international stocks can be a smart move in building a diversified portfolio. With that in mind, we've compiled some of the top international mutual funds, including index funds for more conservative investors, and emerging markets funds for more aggressive investors.
Mutual funds that invest in international stocks often have more market risk than those that invest in U.S. stocks, but that can create more opportunities for investors who are willing to take those risks.
Here are some of the top international index funds to explore investing in.
Best International Index Funds
Index funds can be a good way to get broad and diversified exposure to a large segment of foreign markets at a low cost.
For broad exposure to foreign stocks in both developed and emerging markets, it's tough to beat VTIAX. The fund tracks the FTSE Global All Cap ex U.S. Index, which consists of 7,455 non-U.S. stocks. The expense ratio for VTIAX is a low 0.11% with a minimum $3,000 investment. The ETF option trades as VXUS.
This is another top-notch international index fund that can provide broad and cheap exposure to foreign stocks. FSPSX tracks the MSCI EAFE index, which consists of hundreds of non-U.S. stocks across 21 developed markets. The expense ratio for FSPSX is a low 0.035%, and the fund does not have a minimum investment.
This may be the best index fund for buying European stocks. When you invest in index funds, you're aiming to stick close to the index, which this fund has done in the past. VEUSX tracks the FTSE Developed Europe All Cap Index, which consists of 1,267 European stocks. The expense ratio is a low 0.10%, and the minimum initial investment is $3,000.
Best Funds for Emerging Markets
For investors who are willing to take a higher level of risk for the possibility of higher returns, there are aggressive stock fund choices, such as those investing in emerging markets and/or small- and mid-cap stocks of non-U.S. companies.
This fund invests mostly in emerging markets stocks, but it also invests in emerging markets bonds. Therefore, investors get a balance of stocks and bonds in a fund that has historically seen above-average performance. The expense ratio of 1.16% is fairly average for emerging markets mutual funds, and it doesn't have a minimum initial investment.
If you want a top-rated fund that concentrates its holdings in Asia, MSMLX is one of the best funds for the job. Matthews Asia is a mutual fund company that specializes in Asian stocks, which means that it has experience and knowledge of investing in countries like China, India, and the Philippines. The expense ratio of 1.42% is above average for emerging markets mutual funds, but the experienced management team may be worth the premium. The minimum initial investment is $2,500.
If you're willing to take even more risk, you might want to consider investing in a fund like WAIOX that invests in smaller international companies. Investing in smaller companies can turn into high long-term returns, but of course there are no guarantees of this. Historically, WAIOX has delivered category-beating performance. The expense ratio of 2.02% is high for its category, but the returns could be worth the cost. The minimum initial investment is $2,500.
Investors who want to concentrate primarily on small-cap emerging markets stocks should take a close look at FISMX. Like the Wasatch fund, the Fidelity International Small-Cap Fund has historically produced high returns, compared to other emerging market funds. However, FISMX has a lower expense ratio of 1.08%, and there is no minimum initial investment.
Frequently Asked Questions (FAQs)
How are international index funds taxed?
The U.S. has tax treaties with many countries to prevent double-taxation of foreign capital gains. For the average investor buying international index funds, the tax implications will be the same as for investing in U.S. stocks. You'll create taxable events when you earn capital gains (i.e., sell shares for a profit) or when the fund distributes dividends. If your fund does owe foreign taxes, those taxes will probably be covered by fund managers and taken out of the fund's distributions.
What percentage of your portfolio should be international stocks?
International stocks provide diversification that can be beneficial to a portfolio, but they are generally considered riskier investments than U.S. stocks. It might be a good idea for an investor to keep their allocation to somewhere between 10% and 20%.
The Balance does not provide tax or investment advice or financial services. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.