The exchange traded fund (ETF) market is flooded with hundreds of choices, around 600, so it is time to take a look at what you are investing in. The latest market volatility means watching your exposure and diversification for your portfolio. Jonathan Clements for The Wall Street Journal points out four sectors that can add diversification to a portfolio.

  • Foreign real estate – Lower your portfolios risk by adding investments that tend to have a low correlation with U.S. stocks and with their local stock markets. One such ETF is iShares S&P World ex-US Property (WPS).
  • International small caps – Foreign small cap companies offer exposure to local markets. These companies tend not to be global so the concentration is more on the local exposure. One such ETF that gives good exposure is iShares MSCI EAFE Small-Cap (SCZ).
  • Commodities – Commodity funds are abundant and it is easier than ever to gain exposure to commodities and not just the focused-stocks. PowerShares DB Commodity (DBC) tracks an array of commodities, such as oil and agriculture.
  • Foreign Bonds – These funds can offer diversification within a bond portfolio. SPDR Lehman International Treasury Bond (BWX) has a 0.5% expense ratio, and doesn’t hedge its currency exposure.

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.

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