Single-country exchange traded funds (ETFs) offer regular retail investors the opportunity to gain exposure to economies that would otherwise be tough to reach. Single-country ETFs, more notably those in the emerging markets, have provided high returns, but you should know a few things before you dive in.
A lot of single-country ETFs are heavily weighted in a few companies or sectors, and the potential returns or losses would be magnified as the result of the fortunes of those few assets, reports Rob Curran for The Wall Street Journal. [Emerging Market Bank ETFs Emerge Stronger After Crisis.]
For instance, those interested in investing in the South Korea ETF would be watching the political confrontation between North and South Korea and also keep a tab on Samsung Electronics, which makes up a large proportion of the South Korea ETF’s portfolio.
BlackRock‘s iShares unit, which manages 35 single-country ETFs, cautions investors about concentration risk but also advises investors to adjust their overall portfolios to manage that risk. Most country-specific funds are market-cap weighted – exposure to different stocks is calculated by the total value of stocks’ shares outstanding compared to the market capitalization of other market shares. Some of iShare’s country-specific ETFs hold around a quarter of overall exposure in just a single stock. [Europe ETFs: Who’s Hot, Who’s Not.]