Investors looking to have a well-rounded portfolio will need to step out of their comfort zones and broaden their investment horizons. International-themed exchange traded funds (ETFs) may help spruce up an otherwise bland portfolio with global investments.
Carl Delfeld for ETFxtray has outlined 10 factors for building a global portfolio. Some of the top ones include:
- Growth portfolio. The growth portfolio should be separate from one’s core portfolio. Investments that are more speculative should fall under the growth portfolio, which should include emerging markets. [EEM vs. VWO.]
- Risks. Overall, one should consider the stability of the political and corporate governance, legal environment such as laws in place and level of corruption, and the macroeconomic aspects that include fiscal policies and currency strength. Additionally, it is probably prudent to know what drives a specific country’s economy. [Emerging Market ETFs Poised to Break Out?]
- Know when. Don’t chase after growth. The best times to jump in are when a country has been beaten down and are showing signs of improvement. Watch the trend lines for opportunities.
- Index weightings. It is a good idea to look at the holdings of an ETF. Broad international ETFs heavily weight specific countries. Some ETFs also weight specific sectors higher than others, more notably financials.
- Trading. Manage risk by setting a stop-loss if the stock falls beyond a specific percentage instead of holding onto it. Also, be sure to follow trend lines like the 200-day and 50-day moving averages.
- Keeping an eye on the investment. Investors should rebalance a portfolio at least once a year. Selling ETFs that are past their prime and buying under performers.
Why bother having an international allocation in your portfolio? While there are risks in certain countries, the benefits often outweigh them. Consider:
- Two-thirds of the world’s market cap lies outside the United States, so if you’re only invested domestically, you’re missing out on a large chunk of possible growth.
- Emerging markets are among the fastest-growing economies in the world. Many boast young populations and growing middle classes.
- Iris Greenberger for Investopedia notes that there’s increasing demand for the products of several sectors, including cell phones and alternative energy. ETFs aimed at these sectors could be an alternative way to get exposure to growing markets.
- When assets are repatriated to U.S. dollars, depending on the currency fluctuations, you may get a dollar kicker.
For more information on international ETFs, visit our global ETFs category. A search on our ETF Analyzer shows that there are 293 global equity ETFs out there right now, so you have hundreds of choices – just go to the page and select “global equity” from the drop-down menu and you’ll find ETFs like these:
- iShares S&P Europe 350 Index (NYSEArca: IEV)
- iShares S&P/TOPIX 150 Index (NYSEArca: ITF)
- iShares S&P Latin America 40 Index (NYSEArca: ILF)
- iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM)
- Vanguard’s Emerging Markets ETF (NYSEArca: VWO)
- iShares MSCI EAFE (NYSEArca: EFA)
- BLDRSAsia 50 ADR Index (Nasdaq: ADRA)
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.