International Index Fund: The Top 4 Funds

Foreign stocks are an attractive option for investors who want to diversify their portfolios, with brokers ready to assist in these foreign investments. Still, it’s worth noting these international index funds carry their own special risks, ranging from currency-related to political, and can pose liquidity and due diligence problems for retail investors. Index funds that are global in scope and follow a passive investment approach provide cost-effective means of investing overseas.

Here are four of the best international index funds. We’ve listed some of the most important information for each, including the total assets under management (AUM), net asset value (NAV), and the net expense ratio for each. All info is current as of February 2022.

Key Takeaways

  • Investors can use foreign stocks to diversify their portfolios by investing in international index funds.
  • The Fidelity International Index Fund invests heavily in Europe and Japan.
  • The Schwab International Index Fund focuses on financial, industrial, health care, and consumer discretionary stocks.
  • Investors who seek exposure to companies with high environmental, social, and governance performances may want to consider the Pax International Sustainable Economy Fund.
  • Canada, Europe, and the Pacific region are the geographic areas that make up the focus of the Vanguard Developed Markets Index Fund.

1. Fidelity International Index Fund (FSPSX)

  • AUM: $40.2 billion
  • NAV: $47.55
  • Net Expense Ratio: 0.035%

The Fidelity International Index Fund tracks the performance of the MSCI Europe, Australasia, Far East Index (EAFE), which is a broad index that represents the performance of foreign developed-market stocks. It offers a diversified international portfolio at a very low cost. Because the fund avoids emerging market equities, its returns are subject to lower volatility.

The fund uses sampling techniques to attain investment results similar to those of the underlying index. European stocks have the largest allocation at 66.42%, while Japanese equities account for about 22.04% of the fund’s assets.

The fund provides large exposure to financial and industrial stocks, which have 16.62% and 15.78% allocations respectively. The fund’s portfolio is widely diversified. Its top 10 holdings account for only about 13.04% of its assets.

FSPSX had a 10-year return of 7.20% compared to the benchmark, which returned 7.13% during the same period.

2. Schwab International Index Fund (SWISX)

  • AUM: $8.9 billion
  • NAV: $22.83
  • Net Expense Ratio: 0.06%

The Schwab International Index Fund seeks to track the performance of the MSCI EAFE Index. Like other international equity stocks, this fund exposes investors to foreign currency fluctuations.

While European and Japanese companies line the top of this fund’s portfolio, approximately 17% are invested in the financial services sector, followed by 16.2% in industrials, 12.8% in health care, and 12.5% in consumer discretionary companies.

In 10 years, SWISX returned 7.06% to investors while the benchmark returned 6.94% in that period.

The fund has one of the lowest net expense ratios among its peers and an exceptionally low turnover ratio of 3.94%, making it highly tax efficient. The fund has no load fees and has no minimum investment requirement.

As with any investment, you can purchase shares in any of these funds by opening up an account with a mutual fund company that offers them.

3. Pax International Sustainable Economy Fund (PXINX)

  • AUM: $877.6 million
  • NAV: $10.46
  • Net Expense Ratio: 0.73%

The Pax International Sustainable Economy Fund tracks the performance of the MSCI EAFE ESG Index, which is a member of the MSCI Global Sustainability Indexes. Long-time investors may know the fund from its previous name, the MSCI International ESG Index Fund. This is a no-load fund. It comes with a minimum investment requirement of $1,000.

This index fund provides exposure to companies with high environmental, social, and governance (ESG) performances relative to their sector peers. Its portfolio consists of a mixture of large- and mid-cap foreign stocks with a high geographical concentration in Japan, which makes up approximately 24% of its total assets.

Financials head up the fund’s sector allocation with 18.2%. Industrials and health care are the second and third most concentrated sectors, with 17.8% and 17.1%, respectively.

PXINX had a 10-year return of 8.37%. The benchmark index returned 8.03% during that same 10-year period.

4. Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)

  • AUM: $167 billion
  • NAV: $15.84
  • Net Expense Ratio: 0.07%

Vanguard merged two foreign equity funds in 2014 to form the Vanguard Developed Markets Index Fund. This fund tracks the performance of a benchmark index that measures the investment return of stocks issued by companies located in Canada and the major markets of Europe and the Pacific region.

It has an exceptionally low turnover ratio of 2.4%, making it highly tax-efficient for investors. The fund mainly invests in large- and mid-cap stocks of developed markets. Over 20% of its assets are based in Japan, while over 13% are in the United Kingdom, and almost 10% are in Canada.

VTMGX returned 7.47% to investors in 10 years compared to its benchmark, the Spliced Developed ex U.S. Index, which returned 7.37% during that period.

The fund charges no load fees and requires its investors to contribute at least $3,000.

Are International Index Funds a Good Investment?

Whether international index funds are a good investment option depends on your investment goals, strategies, and capital pool. One thing to keep in mind, though, is that diversifying your exposure to international stocks can mitigate your risk and they do have the potential for giving you a good return on your investment, But remember that any chance of higher rewards comes with higher risk.

What Is An International Index Fund?

An international index fund is a mutual fund that has a global scope as its focus. Just like other mutual funds, international index funds try to track the performance of a similar benchmark index. Many of these are low-cost funds that come with their own risks, such as currency fluctuations, political issues, and liquidity concerns.

What Is the Best International Index Fund?

Only you can determine what makes the best international fund for you. As with any investment, you should do your due diligence and research every aspect of the possible options, including the minimum investment requirements, expense ratios, and the overall performance compared to the benchmark. You’ll also want to have a fund in your portfolio that matches your investment portfolio. So if you’re a value investor, you probably shouldn’t invest in a highly-risky fund that focuses on growth stocks.

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