The Benefits of Looking Abroad With Global ETFs

February 19th at 1:00pm by Tom Lydon

ETF internationalEmerging market and international exchange traded funds (ETFs) are becoming an integral part of a well-rounded portfolio, but the average investor is still under-allocated internationally. It’s natural to be skittish, but going overseas offers a variety of benefits that shouldn’t be overlooked.

A global portfolio offers diversification and exposure to fast-growing economies. But that’s not all:

  • Gains by U.S. investors in overseas markets have enjoyed a “dollar kicker” when assets are repatriated to U.S. dollars
  • Country-focused ETFs are a good way to aim a portfolio at weighting countries more on growth potential rather than market capitalization; this way, any growth potential is harnessed and none of those gains are left out
  • Single country funds also make plays upon other areas; for example, Australia can give good exposure to commodities, and is in the position to spot most of China’s growth; Singapore’s ETF also has high exposure to industrials and telecommunications
  • By using the single-country ETFs, it is possible to challenge the larger conventional indexes, and still garner the diversification and gains.

Not everyone is so keen to go overseas, though. Some believe that government debt problems in Europe and a growth slowdown in China and other emerging markets may make investing in the United States a safer bet for the year, reports Aldo Svaldi for The Denver Post. Additionally, the U.S. dollar is appreciating, which makes investing abroad less lucrative. [10 Tips for Going Global.]

Bill Gross, co-chief investment officer at PIMCO, increased holdings of non-dollar developed-market debt in January for the third consecutive month, writes Wes Goodman for BusinessWeek. Gross urges investors to seek opportunities in “less levered” countries like China, India and Brazil, and search out nations “where national debt levels are low.” [ETFs to Play the World Economic Recovery.]

For more information on emerging markets, visit our emerging market category.

  • Vanguard Emerging Markets (NYSEArca: VWO)

  • iShares MSCI Emerging Markets (NYSEArca: EEM)

  • Vanguard FTSE All World-Ex US ETF (NYSEArca: VEU)

  • iShares MSCI EAFE Index ETF (NYSEArca: EFA)

  • SPDR S&P Emerging Markets (NYSEArca: GMM)

  • Schwab Emerging Equity Markets ETF (NYSEArca: SCHE)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.