Investing in international exchange traded funds (ETFs) is an excellent way to diversify a portfolio as well as jump on some countries that are trending upward. (Did someone say China?) Remember: In today’s world, more than half of the total global stock-market capitalization happens outside the U.S.
When investing in countries or regions, you may check to see they are not heavily weighted in one country. Let’s say you decide to invest in iShares MSCI Australia Index (EWA), but you already own iShares MSCI Pacific ex-Japan (EPP). If you look closely at EPP it holds 66% in Australia. You must determine if you want more exposure in your portfolio to Australia.
Besides looking at countries, study the country’s sector relationships as well. Sometimes you can create overlaps in a portfolio without even realizing it, if you aren’t careful. For example, let’s say the iShares MSCI Australia Index (EWA) looks right for you as a way to get into the international investing arena. If you also had the Materials Select Sector SPDR (XLB), you would have an overlapping investments in the materials sector because Australia is a major supplier for materials and resources to the Asia/Pacific region, notes Gary Gordon for ETF Expert. Do you really need both?
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.