What it is:
How it works (Example):
A number of the largest families of mutual funds include international funds within their portfolio of products and services to investors. International funds offer a diverse amount of asset types, including foreign government and corporate bonds, which can act as hedges against currency exchange rate changes. These international funds also target specific market segments with growth potential. Some examples include emerging markets, new economies, or niche growth sectors in foreign markets, such as diamonds and tourism. International funds have performed well in the last two decades due to the rapid growth of emerging markets and as a hedge against the fall in the value of the dollar.
Why it Matters:
Investing in an international fund does carry a certain amount of risk. For example, sovereign bonds, those government securities with the backing of foreign governments, may not carry the equivalent "low/no" risk that US T-Bills carry, due to the precarious fiscal or political condition of the foreign government. Indeed, many foreign governments receive below investment grade ratings from bond rating agencies due to the added “country risk”. However greater risks often bring greater returns – and international funds offer both.