As a result of the problems coming out of Europe, international stocks and exchange traded funds (ETFs) have become rather volatile. Many investment professionals, though, believe that it’s still worth looking at foreign stock funds.
The markets are uncertain right now, it’s true. But that’s no reason to be scared off of international investing altogether. There are still reasons to have an allocation to other countries, and there are reasons to not be completely scared off of Europe.
- If Europe maintains its common currency, the euro currency’s drop in value will help European exporters, according to Michael A. Pollock and Karen Damato for Yahoo! Finance. [The Upside to Sinking Euro ETFs.]
- David Antonelli, head of global equities investment at Boston-based MFS Investment Management, opines that efforts to fix the crisis, including a bailout of almost $1 trillion, will assuage investors’ fears. The question, though, is when will that happen?
- International stocks offer diversification on several fronts: many U.S. companies derive much of their growth from overseas markets (think McDonald’s, for one) and exposure to purely foreign companies will give you exposure to non-U.S. markets. [How Being Underallocated Could Hurt You.]
- The dollar kicker – when you hold international funds, it’s not just a straight play. You’re also benefiting from currency shifts when those assets are repatriated to U.S. dollars.
- You’re taking place in the world’s development. Two-thirds of the global market cap is outside the United States. [What You’re Missing By Not Owning Global ETFs.]
- Two-in-one exposure to other asset classes. Many Latin American funds will give you exposure to natural resources. Some Asian funds can also be technology plays.
We agree on the benefits of foreign stock ETFs. Most U.S. investors are under-allocated internationally. But is right now the time? Most of these funds are below their 200-day moving average, so there’s no clear uptrend in place. But watch them. Many of them have fallen so low that they’ll be veritable bargains when the markets turn around. [How to Follow Trends.]
For more information on investing, visit our ETF 101.
Max Chen contributed to this article.
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.