Broad-based exchange traded funds (ETFs) could lead you to believe that you own a small piece of the world, but indexes such as the EAFE might have a few too many gaps. The $49 million iShares MSCI EAFE Index ETF (EFA) is the second-largest ETF in the world, and it covers 21 developed nations with Britain, Japan, France and Germany making up 62%. Because the index value is weighted by market capitalization, the larger nations get over-weighted. Countries such as Mexico, Canada and Russia are not even in the index. Lynn O’Shaughnessy for BusinessWeek reports other options are available for investors who want to invest in foreign stocks. Now there are 124 foreign-based ETFs, which is up from about 50 over the past year. Check out four ways to expand a portfolio’s global reach:
- Emerging Market ETFs
Consider the Vanguard Emerging Markets ETF (VWO) or iShares Emerging Markets Index Fund (EEM). These ETFs merge developed and emerging markets, giving investors broad exposure, especially to growing economies.
- Single-country ETFs
Single country ETFs also offer an easy way to add some foreign exposure to a portfolio. Examples include the iShares MSCI Canada Index (EWC), iShares MSCI Mexico Index (EWW) and iShares MSCI Brazil Index (EWZ).
Many investors generally don’t associate small-cap stocks with emerging markets, but they are out there. One example is the SPDR S&P International Small Cap (GWX) that has nearly 500 companies that are scattered around the world and have a market capitalization of less than $2 billion.
- Dividend ETFs
Some international-based ETFs even pay dividends. Some examples include the iShares Dow Jones EPAC Select Dividend Index Fund (IDV) and the WisdomTree International Real Estate Fund (DRW).
For full disclosure, some of Tom Lydon’s clients own EEM and EWC.
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.