International ETFs That Help Diversify
March 29th 2012 at 3:00pm by Tom Lydon
Exchange traded funds focusing on overseas markets can give a portfolio diversification benefits that would protect investors even if the U.S. economic recovery slowed. There are a few countries that have strong growth potential in the near future, despite what the rest of the world is doing.
“For most investors, we recommend a 20% to 25% allocation in foreign equities, given their diversification benefits within a portfolio. Investing in foreign equities provides a hedge against a weakening United States dollar and allows for exposure to faster-growing economies. Passively managed ETFs that aim to cover a broad regional or country index are an easy way to invest in macroeconomic themes,” Patricia Oey for Morningstar wrote.
The following ETFs track countries with strong growth potential, reports Sean Williams for The Motley Fool, which could outperform if the U.S. economy remains sluggish:
- Market Vectors Vietnam (NYSEArca: VNM) The country has shown extreme growth even while the drama of the U.S. and Europe were plaguing markets. In fact, Vietnam’s GDP was reported at around 6%, and has not gone below 3.1%, reports Williams. Since most of the economy is centralized, global growth patterns don’t directly affect Vietnam’s economy. [Vietnam Index ETF: Risks and Rewards]
- Market Vectors Africa ETF (NYSEArca: AFK) This ETF focuses in on Nigeria and South Africa, both of which are abundant in natural resources. Other holdings include Egypt, Morocco and the U.K. Financials, materials and energy are the top sectors represented. Although Egypt’s GDP growth has been flat recently, Nigeria, Morocco, and South Africa’s recently reported GDP growth rates of 7.4%, 4.8% and 3.2% are enticing, reports Williams. [Into Africa With ETFs]
- iShares S&P Latin America 40 Index ETF (NYSEArca: ILF) Brazil and Mexico are the top-rated countries. The 2.9% yield is healthy and the focus on consumer staples countries gives the fund a diversification boost. Various South American countries are included in the index, including Columbia, where less restrictive trading policies are helping. [Latin American ETFs to Spice up Your Portfolio]
Tisha Guerrero contributed to this article.
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.