Tap into global stock market profits the safer way with this high-quality ETF

Exchange-traded funds (ETFs) offer investors more benefits than ever before, mainly because of increased competition. That can make them good choices for certain parts of your portfolio — such as the portion you devote to global stock market investing.

That’s because directly investing in foreign markets can be complicated and risky, and high-quality ETFs let you make global stock market investments with greater safety.

(Below, we examine an ETF that may be appropriate for investors looking for exposure to emerging markets, such as Brazil and South Korea. Read on for further details.)

Exchange-traded funds offer many advantages— at low cost

ETFs mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that are chosen to represent the holdings that go into the calculation of the index or sub-index.

ETFs trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best ETFs offer well-diversified, tax-efficient portfolios with exceptionally low management fees. They are also very liquid.

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Here’s a top ETF for global stock market investing

In the current Canadian Wealth Advisor, we take a close look at five foreign ETFs, and examine whether they are appropriate for your portfolio. One of these is the iShares MSCI Emerging Markets Index Fund (symbol EEM on New York), which aims to track the MSCI Emerging Markets Index.

The ETF holds 14.8% of its portfolio in Brazil, followed by South Korea (12.4%), China (11.2%) and Taiwan (10.4%).

The fund is broken out by industry as follows: Financials, 25.3%; Energy, 15.4%; Information Technology, 14.5%; Materials, 14.2%; Telecommunication Services, 10.0%; Industrials, 5.4%; Consumer Discretionary, 4.3%; Consumer Staples, 4.2%; Utilities, 3.9%; and Health Care, 2.0%.

The ETF holds a number of high-quality companies, including Samsung Electronics, Taiwan Semiconductor (Taiwan: computer chips), Petrobras (Brazil: energy), Banco Itau Holding Finance (Brazil: banking), Posco (steel), China Mobile (China: wireless), Gazprom (Russia: gas utility), KB Financial Group Inc. (South Korea: banking) and Banco Brandesco (Brazil: banking).

iShares MSCI Emerging Markets Index Fund was launched on April 7, 2003. It has an expense ratio of 0.73%.

This ETF is well diversified among emerging markets. That helps cut its risk. However, you should keep in mind that emerging markets are still more volatile and vulnerable than markets in the developed world. That’s why we continue to recommend that you devote only a small part of your portfolio to foreign investing.

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