Investing outside the U.S. is easy with ETFs. In the recent hard-fought midterm election, there was a lot of rhetoric about America’s economic relationships with other nations. Whatever you feel about trade policies, it’s important…
Investing outside the U.S. is easy with ETFs.
In the recent hard-fought midterm election, there was a lot of rhetoric about America’s economic relationships with other nations. Whatever you feel about trade policies, it’s important to understand that in 2018 it has been “America first” in terms of investment. Compared with other major economies, the domestic stock market as measured by the S&P 500 index has outperformed. Of course, with a roughly 5 percent return since Jan. 1, that’s not saying much — and as history shows, today’s winners can turn into tomorrow’s losers. Whether you’re seeking global diversification or to simply increase returns, here are seven country-specific exchange-traded funds outside the U.S. to consider.
Many investors look to Europe for developed-market exposure outside the United States. And since Germany is the region’s largest economy and one of its biggest political forces, that makes this nation at the top of the list — particularly amid sticky fights about Brexit that could cause problems for the United Kingdom’s economy. It’s worth noting this isn’t the largest fund to play Germany — that would be the iShares MSCI Germany ETF (EWG) with $2.6 billion in assets. However, DBGR is hedged against currency fluctuations. Both DBGR and EWG are in the red this year, but that hedging has resulted in moderately lower losses for DBGR.
Japan is the No. 3 national economy by GDP, behind China and the U.S., and that makes this a fund worth holding for serious global investors. Like the prior ETF, the DXJ is hedged against local currency fluctuations and is more of a direct play on whether the underlying stocks in Japan go up or down. But again, a currency hedge alone can’t keep this fund above water, and it has declined about 8 percent year-to-date in 2018 compared with a roughly 8 percent gain for the S&P 500 in the same period.
Although there is a lot of fuss about trade wars and the potential of a slowdown in China as the nation’s manufacturing matures, there is still plenty of growth ahead even as it looks to transition to a more service-oriented economy. GDP expansion is still running at 6.5 percent in 2018 even as some note China’s annual growth rate has slowed to its weakest pace since the financial crisis. Expectations do matter, of course, and this flagship SPDR fund is in the red by double digits since Jan. 1 as a result. But in the long run, investors may be well-served by including some exposure to China in their portfolio.
Those familiar with emerging markets have likely known the great promise and great pain that Brazil has brought investors over the last decade or so. Immediately after the financial crisis, Brazil stocks surged to outperform the U.S. dramatically. But that momentum wasn’t meant to last, in part because of a massive government corruption scandal in 2014 and helped plunge the country into recession. Things are still a bit challenged, as GDP growth has collapsed to less than 3 percent annually from a high of almost 10 percent in 2010. Long-term investors, however, may still consider this key economy for geographic diversification.
You may think with American policy becoming increasingly hostile to our neighbors to the south that Mexico would be a difficult sell to investors. That has partially been true, with the EWW fund down by about 15 percent in 2018, but some investors think that is an overreaction — particularly now that the United States-Mexico-Canada Agreement that replaces NAFTA takes some uncertainty off the table. Mexico remains a key trade partner with both the U.S. and the rest of Latin America, and after a comparatively lower growth rate in 2017, the region could be looking up now that the worst of the trade uncertainty seems resolved.
There are other regions of the world that are worth a look because of their raw potential. That includes the small Arab nation of Qatar, and thus the QAT fund. Thanks to strong momentum for its national economy, including a big investment partnership with Turkey that was announced earlier this year, investors have been optimistic about this emerging market and its future potential. It’s a rare bright spot outside the U.S., with the ETF delivering about 15 percent profits since Jan. 1.
Swinging back the other way, what if you want a fairly sleepy but secure nation for geographic diversification but without the broader volatility in more active markets? In that case, Norway is worth a look. This Scandinavian nation is regularly on the top of lists when it comes to life expectancy, social safety nets and economic stability. It’s not particularly dynamic, but it’s also not some backwater with nothing to offer. These unique factors have made NORW attractive as of late, with the fund up about 5 percent in 2018 to slightly outperform the S&P 500 index.