Ways for investors to play the world.
The World Cup is under way, and there have already plenty of memorable moments. This contest, held every four years, has a remarkable ability to bring people together across nationalities, time zones and races. Particularly in 2018, the World Cup is an example of how interconnected the globe has become. It’s worthwhile to remember this if you’re an investor, because one of the most common portfolio mistakes is to ignore opportunities abroad. If you’re looking to add a global flavor to your portfolio, either to reduce your risk or tap into bigger profits, here are eight funds to consider.
Vanguard Total International Stock ETF (ticker: VXUS)
This Vanguard fund is a great way to add international flavor to your portfolio. It’s one of the biggest international exchange-traded funds with more than $340 billion in assets, and its strategy allows exposure to every market in the world — except for the United States. Top holdings include multinationals you likely recognize, including Royal Dutch Shell (RDS), Swiss consumer goods giant Nestle and Japanese automaker Toyota Motor Co. (TM). But more than 20 percent of the portfolio is in more growth-oriented emerging markets like China and India. This fund can add a lot of geographic diversification to your investments.
SPDR Euro Stoxx 50 ETF (FEZ)
Some investors may not want too much exposure to emerging markets that can carry more risk with their potential for growth. In this case, an ETF focused on Europe like FEZ is a great way to look beyond America to find new opportunities. This fund is benchmarked to 50 key European companies, including French energy giant Total (TOT), Germany’s Bayer and Spanish financial stock Banco Santander (SAN). A good mix of mega-cap stocks in established economies helps keep you in corporations that are practically as stable as U.S. blue chips.
iShare Core MSCI Pacific ETF (IPAC)
Looking to the other side of the world, the IPAC fund makes a focused play on Asia but excludes the smaller companies and countries. The list of holdings is close to 900 names, giving a diversified look at the region via the Commonwealth Bank of Australia and Japanese electronics firm Sony Corp. (SNE), among others. Notably absent are names in fast-growing markets like China or Indonesia. But the fund’s developed-markets emphasis and reliance on large stocks should reduce your risk profile in Asia.
Schwab Emerging Markets Equity ETF (SCHE)
The flip side of focusing on developed markets internationally is to go right for the growth in emerging markets. After all, a multinational foods or energy company in Europe isn’t all that different than a multinational foods company headquartered in the U.S. SCHE offers a different set of companies, with fast-growing Chinese tech play Alibaba Group Holding (BABA) and chipmaker Taiwan Semiconductor Manufacturing Co. (TSM). This is very much an Asia-focused fund. Eight of the top 10 positions are in China, and almost half of all assets are in the pairing of China and Taiwan, which is a diversification drawback.
iShares MSCI Emerging Markets ex China ETF (EMXC)
What if you want to split the difference, looking beyond the developed world into emerging markets but without an over-reliance on China? Well, here is a fund that does exactly that, holding other growth plays around the world including Korea’s Samsung and South African telecom Naspers. Without China, this emerging markets portfolio is much more balanced with 445 holdings and no single company representing more than 6 percent of the portfolio. One aspect to note: About 12 percent of the assets are allocated in one nation via the fund’s investment in the iShares MSCI India ETF (INDA).
Invesco Frontier Markets ETF (FRN)
Emerging markets offer potential, but it’s worth remembering that many of the nations in this category have already seen tremendous growth and are slowing as they mature. This is particularly true for China and India. Investors may want to consider the next step from emerging markets to so-called frontier markets such as Kuwait, Argentina and Morocco. These nations are smaller and not as influential, but many are just beginning to see the tech and consumer revolutions that have lifted other nations over the last decade or two. Top holdings of FRN are smaller and less familiar, but for some investors, that may be the appeal.
Invesco International Corporate Bond ETF (PICB)
It’s worth noting that investors can use ETFs to play the international bond market instead of just sticking with bonds issued by U.S. corporations or the U.S. government. As an “investment grade” fund, this corporate bond ETF only loans to the most credit-worthy international companies in England, Germany, France and elsewhere. If you’re a low-risk investor focused on income, the geographic diversification offered by PICB is a must-have for your portfolio.
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (EBND)
As most investors know, typically the lower the risk in your bonds then the lower the yields. So income-oriented investors may also want to consider this more aggressive bond fund that focuses on governments in emerging markets. Top regions in the EBND include South Korea, Brazil and Malaysia. While these regions do have uncertainty, the diversified nature of this ETF across many bonds and nations provide some peace of mind. And with a 30-day yield of 5.5 percent, this fund offers significantly more income potential than blue-chip dividend stocks or Treasurys.
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8 ETFs for an Interconnected World originally appeared on usnews.com
