International stocks represent shares of companies based outside of your own home country. Since the goal of investing in international stocks is increased diversification, the most popular international stock funds tend to focus on broad regions rather than individual countries. This makes it extremely easy for investors to gain exposure to companies all around the world with a single fund.
Asset color
How they work
International stocks are fundamentally the same as domestic stocks and represent ownership shares of individual companies. Like domestic stocks, they can make money via both dividends and price appreciation. So portfolios do not add international stocks for fundamentally different asset properties. Instead, the benefit is in expanding the stock pool of a portfolio and diversifying away from the economy of a single country.
While buying hundreds or thousands of companies in a single country is plenty of work by itself, doing so in dozens of countries around the world is even more complicated. As a result, international stock funds tend to charge a higher expense ratio than domestic stock funds. In addition, international stock funds tend to be a little less tax efficient as they are required to withhold taxes for each individual country they invest in. While it’s important to keep an eye on expenses, these costs are normal and generally well-managed by the fund and they shouldn’t steer you away from investing internationally.
Definitions
International stock funds follow the same size and value definitions used in domestic stock funds and you’ll see the same factor types such as large cap growth and small cap value. The key differentiation is not the company classification but the location of those companies.
Country coverage
Portfolio Charts collects international stock data for a variety of different global regions:
WLD : World — All global developed countries weighted by market cap
WLDx : World ex-US — All developed countries excluding the United States
USA : United States
EUR : Europe — European countries including the UK
PAC : Pacific — Developed Asia Pacific countries including Japan
EM : Emerging Markets
What the asset codes mean
You may find references to international stock asset codes that combine country and type acronyms. For example, WLD-SCB represents small cap blend stocks around the world and EUR-LCV represents large cap value companies in Europe. The most subtle (but still very important) difference to look out for is WLD vs. WLDx. WLDx excludes the United States, and is the most common international asset recommended to US investors. But European portfolios are far more likely to use a WLD fund for their international allocation because that also includes the US market.
Purchasing an international stock fund
Real-world index funds simply track the above index definitions. So to add a particular asset to your portfolio you just need to find an index fund tracking your desired index. The Index Funds list can help you find a fund for your portfolio, but here are a few additional tips:
– The calculators track the underlying international fund performance and adjust the results for domestic exchange rates and inflation. They best represent unhedged funds.
– If you can’t find a good total stock market international fund, try browsing the large cap blend versions. Many international funds exclude small cap companies to keep costs down, but the returns should be pretty similar.
– If you look at the fine print, some large cap funds actually cover mid caps as well. Practically speaking, the performance should be very similar because of how the funds are market weighted so I wouldn’t stress about the details. But if you’re really picky, you might try adjusting the calculators to add a dash of mid caps to most accurately model your favorite fund.
– Note that most total stock market international stock assets on the site only include developed markets. In index fund terms, this means they track the World index and not the All Country World Index (ACWI). Emerging markets are separate and can be sprinkled into other asset data as desired.
– Funds from different providers may have different trading fees at your individual broker. When possible, be sure to look for funds with low trading fees.
