A penny saved is a penny earned. Investors seeking to diversify their investment portfolios should consider broad international exchange traded funds, and a number of offerings also come with extremely cheap fees.
In a recent article, we highlighted a group of the cheapest U.S. stock ETFs on the market, but investors shouldn’t neglect international exposure either. International ETFs may provide a cheap portfolio diversifier for investors who are heavy on U.S. equities and access overseas growth opportunities.
“Foreign developed-markets stocks can offer reasonable diversification benefits to U.S. investors,” according to Morningstar analyst Thomas Boccellari. “The fund’s broad portfolio may help diversify local-market, interest-rate, and currency risk. For example, the risk of interest rates rising may be smaller in Europe and Japan than in the United States.”
However, the potential investors need to be aware that these funds do not hedge currency risk, so a stronger dollar or weaker foreign currencies could slightly weigh on returns.
Through ETFs, people are able to access the far corners of the global markets at a low cost. For instance, U.S.-listed ETFs have an average expense ratio of 0.61%, and the average international ex-US ETF shows a 0.53%, according to XTF data. The cheapest international equity ETFs all come with expense ratios lower than 0.15%.
Vanguard Total International Stock ETF (NYSEArca: VXUS)
Expense ratio: 0.14%
Comment: The Total International Stock ETF covers a broad range of categories, including emerging market and some small-capitalization stock exposure. The fund covers almost 98% of the world’s total investable stock capitalization outside of the U.S. Currently, about 85.5% of its portfolio is allocated toward developed market stocks, along with 14.5% in emerging markets. Additionally, VXUS has a 3.5% weight toward small-cap stocks.
iShares Core MSCI EAFE ETF (NYSEArca: IEFA)
Expense ratio: 0.14%
Comment: As part of its so-called Core suite of ETFs, IEFA is considered a suitable “core” portfolio holding for access to developed markets outside of North America, which include developed Europe, Australasia and Far East, or EAFE. The ETF tracks the MSCI EAFE Investable Market Index and is exposed to a portfolio of 2,476 stock components.
Schwab Emerging Markets Equity ETF (NYSEArca: SCHE)
Expense ratio: 0.14%
Comment: SCHE is the cheapest emerging market equity ETF on the market. Moreover, investors on the Schwab platform can trade the ETF commission-free, along with the other Schwab ETF offerings. The fund covers about 900 emerging market stocks from 22 developing countries. Since SCHE reflect the performance of a FTSE index, it does not include South Korean securities, which FTSE labels as a developed market.
iShares Core MSCI Pacific ETF (NYSEArca: IPAC)
Expense ratio: 0.14%
Comment: For those who would like a more targeted exposure to developed markets, this iShares offering helps investors single out developed Asian markets. Specifically, IPAC takes a diversified group of almost 800 stocks from the Asian Pacific, which includes Japan, Australia, Hong Kong and Singapore. Investors who are wary about the ongoing weakness in developed European economies may take a look at IPAC to access other developed markets.
Vanguard FTSE Pacific ETF (NYSEArca: VPL)
Expense ratio: 0.12%
Comment: Unlike IPAC, which tracks an MSCI Index, VPL reflects the performance of a FTSE index. Consequently, the Vanguard Pacific ETF includes South Korean stocks in the mix, along with Japan, Australia, Hong Kong and Singapore.
Vanguard FTSE Europe ETF (NYSEArca: VGK)
Expense ratio: 0.12%
Comment: VGK is the cheapest and largest Europe-centric ETF on the market. Potential investors, though, should be aware that VGK tracks broad European exposure, which includes a hefty tilt toward the United Kingdom and Switzerland stock markets.
Vanguard FTSE Developed Markets ETF (NYSEArca: VEA)
Expense Ratio: 0.09%
Comment: For broad international developed market exposure, VEA tracks around 1,390 company stocks from developed economies outside of North America, including European markets and Asian equities. It should be noted that the fund excludes Canadian stocks.
Schwab International Equity (NYSEArca: SCHF)
Expense ratio: 0.08%
Comment: This Schwab offering is the cheapest international-equity ETF on the market. SCHF covers the FTSE Developed ex-US index, which is comprised of over 1,200 large- and mid-cap stocks taken from developed Europe, Canada, Asia and Australia, with a currently heavy country-focus on Japan and the United Kingdom.