Domestic and international stocks and exchange traded funds (ETFs) have started to shine since hitting a low on March 9, but how do you know which ones to choose?
With well over 700 ETFs being offered ranging from going short on gold to gaining exposure to Malaysia, some investors are overwhelmed by the smorgasbord of choices. When it comes to narrowing it down to international ETFs, the list still remains long. According to Simon Maierhofer of ETF Guide, there are 13 broad international equity ETFs, 26 regional ETFs, 42 country-specific equity ETFs, 32 international equity sector ETFs and 16 size-specific international equity ETFs. This could confuse anyone.
When picking an international ETF one thing to keep in mind is diversification. Emerging markets are known to be more volatile than the markets of developed nations, therefore one doesn’t want to be overly exposed to a specific region or country, unless, of course, that is your strategy.
When focusing on broad international equity ETFs, the vast majority play favorites to Japan and the United Kingdom. Case in point: the popular iShares MSCI EAFE Index ETF (EFA), which is down nearly 6.6% for the year, allocates 24.1% of its assets to Japan, 19.9% to the United Kingdom and holds 838 securities; 44% of its assets are allocated to two countries, talk about a lack of diversification.
On the flip side, the Vanguard FTSE All World-Ex US ETF (VEU), down for the year and allocates 17.5% of its assets to Japan, 14.4% to the United Kingdom and holds a whopping 2,167 securities – a much more diverse option. Exposure to Japan and the United Kingdom isn’t necessarily a bad thing; after all, they are both developed nations. Research indicates, however, that they move in tandem with the U.S. equity markets.