We think foreign stocks can safely make up 10% of a conservative investor’s portfolio. One way is through exchange-traded funds (ETFs) with an overseas focus. The best of those ETFs charge you very low management fees yet offer you well-diversified, tax-efficient portfolios of high-quality stocks.
Here are two funds: one provides exposure to Germany’s leading companies across diverse sectors as supply chain issues ease; and the other offers similar exposure to Australian companies as international mineral demand remains high.
ISHARES MSCI GERMANY FUND (New York symbol EWG; buy or sell through brokers) tracks the stocks in the MSCI Germany Index. Through its holdings, it aims to replicate 85% of the market capitalization of the German stock market. The remaining 15% is unavailable to foreign investors; that’s partly due to limitations on foreign ownership.
Regardless, the ETF offers you exposure to Germany’s top stocks: SAP (software) at 16.1%; Siemens (engineering), 9.8% of assets; Allianz (insurance), 8,1%; Deutsche Telekom, 7.0%; Munich Reinsurance, 4.5%; Mercedes-Benz (autos), 3.0%; and BASF (chemicals), 2.9%.
The fund began trading in 1996. Investors pay a reasonable 0.50% MER.
The German economy continues to face challenges: the war in Ukraine, which has hurt trade relations with Russia; and, more recently, continued high inflation and interest rates. The economic slowdown for its major trading partner, China, has also hurt exports.
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Still, the country’s longer-term outlook is sound, especially when global economies expand anew. As well, supply chain bottlenecks have eased, and natural gas prices have fallen—they’re now closer to their historical averages. Further, Germany is successfully working with other EU members to reform the bloc’s electricity markets and boost energy security following Russia’s invasion of Ukraine.
ETFs: iShares MSCI Australia ETF is backed by a solid commodity export and economic growth outlook
ISHARES MSCI AUSTRALIA ETF (New York symbol EWA; buy or sell through brokers) exposes you to 57 of Australia’s major stocks.
The ETF’s top holdings are Commonwealth Bank of Australia at 12.4% of assets; BHP Group (mining), 11.3%; CSL Ltd. (biotechnology), 7.1%; National Australia Bank, 6.1%; Westpac Banking, 5.8%; ANZ Group Holdings (finance), 4.9%; Macquarie Group (financial services), 4.2%; Wesfarmers (conglomerate), 3.9%; and Goodman Group (real estate), 3.2%.
By industry, the fund’s holdings break down as Financials, 38.5%; Mining, 19.8%; Health Care, 9.7%; Real Estate, 6.6%; Consumer Discretionary, 6.3%; Industrials, 5.1%; Consumer Staples, 4.0%; Energy, 3.8%; Telecoms, 2.6%; Information Technology, 2.1%; and Utilities, 1.3%.
The iShares MSCI Australia ETF started up March 12, 1996, and investors pay a reasonable 0.50% MER.
The Australian economy remains steady, amid rising international demand for minerals and a recovering tourism market.
The 2025 outlook is positive, although economic growth will likely remain somewhat muted. The main threats are still-high inflation, which is hurting consumer spending, as well as sluggish global growth and high interest rates.
At the same time, still-solid global demand for commodities will boost exports. That should help to offset risks such as the ongoing tension between the U.S. and China, as well as a shortage of skilled workers and rising labour costs in the service industry.
Recommendation in Canadian Wealth Advisor: iShares MSCI Germany Fund & Australia ETF are buys.
