Income seekers have delved into the markets in search of attractive payouts during this low-yield environment. Some have found enticing yields in country-specific exchange traded funds; however, potential investors should not let yields blind them and consider the underlying risks associated with the country in question.
Roger Nusbaum of The Street points to a recent Wall Street Journal column that focused on single-country ETFs with “safe” dividend yields greater than 4%.
Specifically, countries like Australia, New Zealand, Norway and Poland:
- iShares MSCI Australia Index Fund ETF (NYSEArca: EWA): yield 5.24%
- WisdomTree Australia Dividend Fund ETF (NYSEArca: AUSE): yield 6.25%
- iShares MSCI New Zealand Investable Market Index Fund ETF (NYSEArca: ENZL): yield
- Global X FTSE Norway 30 ETF (NYSEArca: NORW): yield 6.34%
- iShares MSCI Norway Cppd Investable Mkt (NYSEArca: ENOR): yield 4.72%
- iShares MSCI Poland Investable Market Index Fund ETF (NYSEArca: EPOL): yield 5.99%
- Market Vectors Poland ETF (NYSEArca: PLND): yield 4.56%
While the yields look attractive, investors should consider country and regional risks, such as a country’s fiscal health, along with the actual make up of the funds, like holdings and sector weightings.
For instance, the iShares MSCI Spain Index (NYSEArca: EWP) has an impressive 13.76% yield, but investors would probably not hold this over a long-term period for obvious reasons concerning volatility and the country’s fiscal health. [European ETF Market Suffers Amid Debt Crisis]
Poland’s close proximity to the troubled Eurozone will also weigh on its export industry, while Australia is closely tied to trade with China.
New Zealand has a large trade deficit since it relies heavily on imports for its basic goods. Additionally, the country also has a heavy emphasis on its telecom sector.
Norway, though, has no debt and enjoys a budget surplus. The country is leveraged to the energy market, so short-term volatility in crude oil could affect its market.
Moreover, most emerging market and international single-country ETFs have a heavy emphasis on the financials sector. When holding onto these ETFs, an investors should be wary of becoming overexposed to a single sector.
For more information country-specific ETFs, visit our global ETFs category.
Max Chen contributed to this article.