Investors can diversify a portfolio with international stock exchange traded funds, but before diving into overseas investments, people should take a moment to consider some factors.
“To make good decisions about your foreign-stock holdings, it’s important to give some consideration to the amount of initial research and ongoing oversight you’re willing to dedicate to your portfolio, how much volatility you’re willing to tolerate, and whether you want to shoot for market-beating performance or are comfortable holding an index basket of foreign stocks,” writes Christine Benz, Morningstar‘s director of personal finance.
Investors should consider what type of investment vehicle they are comfortable with, costs, market exposure and currency risks.
To start off, an investor can select individual securities, or simply go with a broad fund. For example, the Vanguard FTSE All-World ex-US (NYSEArca: VEU), with $12.7 billion in assets under management, is the largest ETF to focus on international markets and tracks 2,330 different global company stocks. The iShares MSCI ACWI ex U.S. ETF (NasdaqGM: ACWX) also tracks markets outside the U.S. and includes 1,061 components. The ETFs provide a simple way to cover a diverse range of international securities.
Additionally, instead of accumulating trading fees on a number of international stock picks, an investor would only have to pay for the commission-fees of a single ETF trade.
Alternatively, investors may also consider an actively managed fund option to capitalize on an asset manager’s expertise. For instance, the actively managed iShares Enhanced International Large-Cap ETF (NYSEArca: IEIL) uses quality, value and size factors to seek out long-term capital appreciation. However, active ETFs are slightly more expensive than their passive, index-based counterparts. IEIL has a 0.35% expense ratio while VEU has a 0.15% expense ratio. [iShares Introduces Two New ETFs Thursday]