International/Global/Emerging/ Regional/Foreign: What's the difference?
Financial articles and mutual fund marketing material often talk about Global Funds, International Funds, Emerging Market Funds, Regional Funds and Foreign Funds. What's the difference between them? I'll try my best to explain:
International Funds/Foreign Funds: Invest in equities only outside the United States. These terms are interchangeable, although many companies and financial publications prefer "International Funds."
Emerging Markets Funds: Invest in companies that are in "developing" economies, such as Brazil, India, or Mexico. Emerging markets are riskier than developed markets, as many investors in Southeast Asia and Russia learned in the late 1990s, when a series of financial shocks and currency re-valuations played havoc with local stock indicies. Additionally, some markets do not have transparent financial policies or reliable accounting standards. Note also that some developing economies have made a full transition to a developed economy in recent decades, such as Korea.
Global Funds: Invest in the U.S. and in foreign markets. At some funds, managers may make U.S. investments that are tied to export industries or foreign trade.
Regional Funds: Invest in a region -- Europe, Southeast Asia, "Pacific", "Nordic," "Greater China," etc.
Country-specific Funds: Invest only in a certain country, such as Japan or Canada.
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I need to add a clarification to the section about "Emerging Market" funds: They are not limited to developing markets -- they also include stocks from fully developed, modern economies.
Case in point: Fidelity Emerging Markets fund, which achieved 40% growth last year on the strength of investments in countries such as South Korea, Taiwan, and Israel, none of which I would consider transitional economies.
Taiwan, for instance, was deemed a newly industrialized country 20 or 30 years ago, and has a modern, healthy stock market with high levels of foreign interest and investment. It is hardly an "emerging" market in my book, but it seems fund managers expand the definition to include unfamilar yet developed markets outside of Europe, North America, and Japan.
