Foreign ETFs for a Diversified Portfolio

Adding foreign ETFs to your portfolio can be a great way to diversify your investments and potentially reduce risk. This is because foreign ETFs allow you to invest in a broad range of assets from around the world, such as stocks, bonds, and commodities.

Investing in foreign ETFs can also provide access to emerging markets, which can be a good source of growth. For example, the MSCI Emerging Markets Index, which is tracked by the iShares MSCI Emerging Markets ETF, includes countries such as China and India.

Some popular foreign ETFs to consider include the Vanguard FTSE Developed Markets ETF, which tracks a broad index of developed markets, and the iShares MSCI EAFE ETF, which tracks a subset of developed markets outside of North America. Both of these ETFs have low fees and have been around for a long time.

Holding a significant portion of your portfolio in international ETFs can be a game-changer for your investment strategy. By diversifying your investments globally, you can tap into better growth opportunities and potentially lower volatility.

International equities are often more attractively valued than those in the U.S., with valuations on international stocks historically lower than U.S. stocks. This gap is even larger now, creating compelling opportunities for savvy investors.

Investing in emerging markets can give you access to countries experiencing potentially greater growth than mature economies. For example, emerging markets can offer companies with better demographics, cheaper labor, and access to natural resources, allowing them to grow businesses both at home and abroad.

A decent rule of thumb for a traditional portfolio is to hold 60% domestic and 40% international stocks. This creates a good diversification, but also allows you to remain concentrated in U.S.-based markets, which have historically been strong.

Here are some key factors to consider when deciding how much international exposure to have:

Limited exposure to foreign stocks may seem like a positive when the U.S. market is outperforming, but when global trends shift, you could miss out on the potential for higher returns and lower volatility.

Choosing the right foreign ETFs can be a daunting task, but it doesn't have to be.

First and foremost, consider the country exposure of the ETF. Each index provider may define the countries in their universe differently, which can lead to very different weightings on both a country and sector level. For example, the term 'world' may mean a different set of countries for each index provider.

To keep investment costs low, aim to keep expenses low, but don't blindly look for opportunities in the cheapest parts of international markets. Instead, look for valuable opportunities within international markets, without sacrificing quality and consistency.

The expense ratio is another crucial factor to consider. International equity ETF expense ratios were on average 0.1% higher than U.S. equity ETFs in 2022.

Tracking error is also an important consideration. Many international ETFs track a benchmark index, and the tracking error will measure how closely the fund adheres to its benchmark's performance.

When screening for international ETFs, consider factors like geographic region, fees, trading performance, assets under management, and fund issuer. Some investors feel comfortable only investing in large asset managers, while others see the value in newcomers.

To get a better understanding of an ETF's performance, check its short-, mid-, and long-term performance. You can also look at its trading volume to see how liquid the fund is.

Here are some key features to consider when choosing an international ETF:

By considering these factors and doing your own research, you can find the best international ETF for your unique portfolio.

There are various types of international ETFs to choose from, each with its own focus.

Broad-based ETFs can provide exposure to a wide range of countries and sectors, while sector-specific or single-country ETFs can offer more targeted investment opportunities.

Some international ETFs mimic the financial situation in a particular country, such as the iShares MSCI Germany Index ETF, while others focus on a region, like the iShares MSCI BRIC Index ETF.

An international ETF is a type of investment that allows you to gain exposure to foreign-based securities.

These funds can focus on a specific country, region, or even a particular industry, and may hold equities or fixed-income securities.

The Vanguard Total International Stock ETF (VXUS) is a great example of an international ETF, tracking the performance of global company stocks listed on the FTSE Global All Cap ex U.S. Index.

The fund has nearly 8,000 stocks in its portfolio, including companies from 42 separate countries, and has earned investors an annualized return of around 5% since its inception.

Some international ETFs, like the iShares Core MSCI Total International Stock ETF (IXUS), have a low net expense ratio of just 0.07% and are a reliable option for less risk-inclined individuals.

Here's a comparison of two popular international ETFs:

These figures illustrate the importance of considering expense ratios and assets under management when choosing an international ETF.

Investors can also consider the fund's top holdings, such as Taiwan Semiconductor, Nestlé, Novo Nordisk, Tencent Holdings, and Samsung Electronics, to ensure they align with their financial goals.

The Fidelity Value Factor is a diversified international ETF that tracks the Fidelity International Value Factor Index. It's a great option for investors looking to spread their risk across multiple countries and regions.

This ETF covers 10 different countries, including the UK, Germany, and Japan. Japan actually represents the largest country exposure overall, making up more than 23% of the portfolio.

The expense ratio for this ETF is 0.39%, which is relatively low compared to other investment options. This means you'll pay less in fees over time, which can add up to significant savings.

Here's a breakdown of the countries included in the Fidelity International Value Factor ETF portfolio:

The FlexShares Quality Low Volatility ETF is a great option for those looking to invest in emerging markets with a lower risk profile. It has a standard deviation of 12.04, which is significantly lower than the Morningstar Diversified Emerging Markets category.

This ETF focuses on the financial health of the companies it holds, making it a more stable investment choice. The fund's holdings cover a dozen countries, with China making up more than one-fifth of the portfolio.

Here are some key statistics about the FlexShares Quality Low Volatility ETF:

The ETF pays a yield of more than 2%, making it an attractive option for income investors. With its low volatility and relatively low expense ratio, the FlexShares Quality Low Volatility ETF is definitely worth considering for those looking to invest in emerging markets.

Investing internationally can be a great way to diversify your portfolio, but it's essential to understand the different types of markets involved. Developed, emerging, and frontier markets are the main categories, each with its unique characteristics.

Developed markets have well-established economies and capital markets, making them relatively stable and less risky. Emerging markets, on the other hand, are growing rapidly but still carry some level of risk.

Frontier markets, however, are the most volatile and carry the highest risk of political, economic, and currency instability. Countries like Vietnam, Nigeria, and Bangladesh are examples of frontier markets.

Investors who opt for frontier markets are often willing to take on higher risk in pursuit of potentially higher returns. However, this comes with the caveat that trading volumes are often low and investment participation is limited.

It's worth noting that no single country or region provides total exposure to the global economy, making international diversification a crucial aspect of any investment strategy.

US Domestic Stocks are often considered a safe haven for investors, but they can also come with a risk known as "home bias." This refers to the tendency for investors to hold the majority of their portfolios in domestic assets.

Historical fluctuations in market leadership show that the US market has outperformed international stocks over the past decade, boosted by solid gains in the technology sector.

However, this trend may not always continue, and it's essential to consider the benefits of diversification.

Schwab Equity offers a range of international ETFs that can help diversify your portfolio.

The Schwab International Equity ETF (SCHF) has over 60% of its portfolio divided between European and Japanese companies, with a significant portion also invested in UK companies.

Its top holdings include Nestle, HSBC, and Samsung, and the fund is weighted towards large-cap companies.

The expense ratio for this fund is 0.06%, making it a cost-effective option for investors.

Schwab Equity also offers the Schwab Emerging Markets Equity ETF (SCHE), which invests in emerging markets and has a net expense ratio of 0.11%.

The fund has $9.83 billion in assets under management and its top sectors are financial services, technology, and consumer cyclical.

Here are the key features of the Schwab Equity ETFs:

These ETFs offer a convenient way to gain exposure to international markets, with a range of sectors and industries represented.

The Invesco China Technology ETF (CQQQ) is a great option for investors looking to tap into China's growing tech market.

Invesco is a well-respected fund for investors, known for producing great returns. However, its funds tend to have relatively high expense ratios, which is not ideal for everyone.

The CQQQ ETF closely tracks the FTSE China Incl A 25% Technology Capped Index, which is made up of mid- and large-cap tech companies in China. The index holds $783.36M in total net assets.

The ETF's most significant holdings include Meituan, Tencent Holdings and Baidu, which are all major players in the Chinese tech industry.

International funds can include developed, emerging, or frontier market investments in a range of asset classes. These funds can offer varying levels of risk and return.

In developed markets, you'll usually find countries with mature capital markets, broad regulatory bodies, advanced infrastructure, and other economic stability factors. Countries like the United Kingdom, Switzerland, and Japan belong to this category.

The most important characteristics to pay attention to in any foreign fund are its country exposure, expense ratio, and tracking error. Each index provider may define the countries in their universe differently, which can lead to very different weightings on both a country and sector level.

International equity ETF expense ratios were on average 0.1% higher than U.S. equity ETFs in 2022, but you should still aim to keep expenses low. This simplistic approach toward lower portfolio valuations can result in exposure to companies with poorer profitability and elevated volatility.

Developed markets' investment profiles closely match the United States. As a result, their investment profiles closely match the United States.

If you're looking to add some international flavor to your investment portfolio, you've got plenty of options to choose from. Here are a few popular ETFs to consider.

The Vanguard Total International Stock ETF (VXUS) is a great choice for those looking to diversify their portfolio. It invests in global stocks, excluding U.S. stocks, and has earned investors an annualized return of around 5% since its inception in 2011.

You can also consider the iShares Core MSCI Total International Stock ETF (IXUS), which offers a low expense ratio of just 0.08%. It's a broad-based ETF that provides exposure to a wide range of countries and sectors.

The SPDR S&P 500 ETF is a well-known ETF, but if you're looking for foreign options, there are many to choose from. For example, the iShares MSCI Germany Index ETF and the iShares MSCI BRIC Index ETF offer exposure to specific countries and regions.

Here are a few popular international ETFs to consider:

These are just a few examples of the many international ETFs available. Be sure to do your own research and choose an ETF that meets your specific investment needs.