International vs. Global
Today’s post deals with a simple issue of terminology for investing, which you’ll see when it comes to investing is not so simple. In case you are interested, you can view a comprehensive Financial Vocabulary Booklet we’ve put together, which has many financial terms you might find helpful. Today, we’ll primarily be discussing international verses global and a few related terms. In your everyday non-financial discussions, these two terms are fairly interchangeable. But, not when it comes to investing.
Global – These are investments that are supposed to encompass investing in the entire world. However, keep in mind that often times these investments will exclude all or some emerging market countries. So you have to read prospectuses carefully. Sometimes finance people will refer to Global as being Domestic plus International, which brings us to our next two terms.
International – These are investments that are supposed to encompass the world other than the domestic United States. Sometimes these investments may be referred to as Ex-US, which is short for excluding the United States. Again, these investments will usually exclude emerging markets, so most often International really means developed markets that are non-US.
Developed markets are generally markets which are considered larger, more established, and with more liquidity. As of 2008 the Financial Times of London Stock Exchange (FTSE) classified the following countries as developed: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, United Kingdom and United States. Everything else is considered emerging markets.
Emerging markets are non-developed markets. Generally markets in these countries are smaller, less established, and have less liquidity. Emerging markets are actually then subdivided into three categories, which are advanced, secondary, and frontier. I won’t go into those today.
Domestic – This is perhaps one of the more confusing financial terms because domestic should be relative, but most often for investment fund names it is not. What I mean by this is that if you are Australian and live in Australia, domestic should mean “in Australia”, but it doesn’t mean that with most investment fund nomenclature. Most often, but not always, when describing investment funds, the term domestic is synonymous with the United States, which is good for you if you are an American living in the United States. Just remember, domestic is still a relative term in other contexts, including other financial contexts. So, it never hurts to confirm that a domestic investment is referring to the US, particularly if you are looking at an investment that is less broadly traded, is managed in another country, or has some other reason to be dissociated with the United States.
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