Topic: ETFs

International ETFs offer rewards—but risk to match

international etfs

Successful investing in international ETFs has a lot to do with understanding the economies of the countries you invest in.

We think conservative investors could hold up to 10% of their portfolios in foreign stocks (outside of the U.S.). One way to do that is to buy carefully chosen international exchange traded funds (ETFs) that have an overseas focus.

International exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index, which may cover stocks in one country, such as Korea, Chile or Brazil, or those in across an entire region such as Europe or Asia Pacific. They hold a more or less fixed selection of securities that represent the holdings that go into calculating the index or sub-index.

International ETFs trade on Canadian and U.S. stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading.

NEW: The key to success in ETFs

Our new report holds the key to making the most of ETFs in your portfolio. The secret: know the difference between the original, easy-to-understand ETFs and complex hybrids created for the greater profit of the investment industry. Pat McKeough explains it all in this just-released report and recommends 11 ETFs for a stronger portfolio.

Read this new free report >>

Prices of international ETFs are quoted in stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds.

Three aggressive ETFs:

South Korea

Although ETFs aren’t typically aggressive investments, there are many international ETFs that are considered aggressive. For example, the iShares MSCI South Korea Index Fund (New York symbol EWY) was launched on May 9, 2000, to track the MSCI Korea Index. Its top holdings are companies such as Samsung, Hyundai, SK Hynix Semiconductor, Shinham Financial and Naver. Its expense ratio is 0.62%.

South Korea has Asia’s fourth-largest economy, after China, Japan and India. It is reliant on exports, and shipments to the U.S. are rebounding. That’s offsetting weak shipments to China. The steady rise of South Korea’s currency, the won, hurt its economy in 2012 and 2013 by making its goods more expensive for foreign buyers. But South Korea cut interest rates to record lows, bringing the won down to five-year lows against the U.S. dollar. The move has boosted exports.

In the longer term, the country faces an aging population, with a birth rate of 1.2 children per woman—the lowest in the developed world.

The country ships about 25% of its exports to China, and weak demand there will hurt manufacturers. However, the U.S., Europe and Japan together account for a further 25% of exports. An improving outlook for them should offset the weakness in China. 

South Korea’s economy will likely grow by 3.9% in 2016, and a big stimulus program and continued low oil prices could push that figure higher; South Korea imports almost all of its oil, bringing in the fifth-largest amount in the world, after Germany.


Another fund, the iShares MSCI Brazil Index Fund (New York symbol EWZ), is designed to track the Brazilian stock market. It’s an international ETF we just see as a hold right now because sluggish exports and low resource prices continue to slow Brazil’s economic growth. That country still has strong long-term growth potential, as long as it gets its economy back on track. State-controlled oil and gas giant Petrobras is in the midst of a huge corruption scandal. As well, president Dilma Rousseff, re-elected in late 2014, had promised less growth-inhibiting government intervention in the economy. However, she has now been impeached, and the future is more uncertain.


The iShares MSCI Chile Investable Market Fund (New York Symbol ECH) aims to track the MSCI Chile Investable Market Index, which consists of stocks that mainly trade on the Santiago Stock Exchange. We consider it a hold because even though the country’s long-term outlook remains sound, Chile is the world’s biggest copper producer and a major supplier to Asian markets. Its dependence on resources is something of a drawback to investment, particularly as Asian economies have slowed and copper prices have dropped sharply.

Here’s a conservative ETF:


Meanwhile, in Germany, weak European markets have slowed the country’s growth this year, while ongoing sanctions against Russia continue to hurt German firms with a significant number of Russian customers. However, the low euro remains a big plus for its exports, and the long-term outlook for its economy is sound. We see the iShares MSCI Germany ETF (New York symbol EWG) as a buy.

Finding safe international ETF investments

For the most part, we recommend limiting your investment in international ETFs to those funds focused on stable economies.

Emerging markets are more volatile and vulnerable to downturns than developed nations. But an international fund’s broad diversification among many countries can mitigate that risk. An example is the iShares MSCI Emerging Markets Index Fund (New York symbol EEM), which aims to track the MSCI Emerging Markets Index and whose geographic breakdown includes China, South Korea, Taiwan, India, South Africa and others.

Beyond diversification, the best international ETFs to include in the 10% of your portfolio we mentioned earlier will offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks.

The MER (Management Expense Ratio) is generally much lower on ETFs than on conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing client investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

ETFs practice “passive” fund management, in contrast to the “active” management that conventional mutual funds provide at much higher costs. Traditional ETFs stick with this passive management—they follow the lead of the sponsor of the index (for example, Standard & Poors). Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.

This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investment down.

What international ETFs have you bought or sold, and how did you do your research? Let us know in the comments.


Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.