Topic: ETFs

Two international ETFs offer strong opportunities for diversification

We believe all Canadian investors should have 20% to 30% of their portfolios in U.S. stocks. However, you can also diversify by adding foreign ETFs in reasonable quantities, as much as 10% of your holdings as a conservative investor. 

The best ETFs continue to offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks.

After a strong surge in 2017, overall growth in European and overseas markets has slowed, while emerging markets are unsettled by a higher U.S. dollar. However, these two ETFs represent mature economies with strong long-term prospects.

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ISHARES MSCI GERMANY FUND (New York symbol EWG; buy or sell through brokers) tracks the stocks in the MSCI Germany Index. These holdings aim to replicate 85% of the market capitalization of the German stock market. The remaining 15% is unavailable to international investors, partly due to limitations on foreign ownership.

The ETF’s top stocks are SAP (software), 7.1%; Allianz (insurance), 7.0%; Siemens (engineering conglomerate), 6.8%; Bayer (diversified chemicals), 6.5%; BASF (chemicals), 6.5%; Daimler (automobiles), 5.7%; Deutsche Telekom, 3.8%; Adidas AG, 3.2%; and Linde AG (industrial gases), 2.7.

The ETF began trading March 1996. Its MER is 0.47%.

Strong global demand continues to boost Germany’s export-oriented economy. As well, domestic demand is high, led by a rise in retail sales and industrial production.

Chancellor Angela Merkel recently resolved Germany’s political uncertainty when she successfully formed a coalition government between her Christian Democrat party and the Social Democrats. The “grand coalition” will require Merkel to boost spending, mostly on welfare benefits. However, while that’s a departure from Germany’s traditional fiscal restraint, it should stimulate economic growth.

Recommendation in Canadian Wealth Advisor: iShares MSCI Germany Fund is a buy.

ETFs: Rising commodity prices boost the national economy

ISHARES MSCI AUSTRALIA ETF (New York symbol EWA; buy or sell through brokers) is an ETF that holds 71 major Australian stocks.

The fund’s top holdings are Commonwealth Bank of Australia, 9.9%; Westpac Banking, 7.6%; BHP Billiton, 7.1%; Australia and New Zealand Banking Group, 6.2%; National Australia Bank, 6.2%; CSL, 5.5%; Wesfarmers, 3.7%; Woolworths, 2.7%; Macquarie Group, 2.6%; and Rio Tinto, 2.4%.

By industry, the ETF holds Financials, 39.9%; Mining, 17.3%; Real Estate, 8.3%; Health Care, 8.0%; Consumer Staples, 7.7%; Industrials, 5.8%; Energy, 5.5%; Consumer Discretionary, 2.7%; Utilities, 2.1%; and Telecom, 1.2%.

The iShares MSCI Australia ETF started up on March 12, 1996. It has a 0.49% expense ratio.

Australia benefits from its stable banking and political systems. It is also rich in natural resources, while rising commodity prices boost the overall national economy. In addition, the country’s proximity to Asian markets, including India and China, strengthens its long-term prospects.

Recommendation in Canadian Wealth Advisor: iShares MSCI Australia ETF is a buy.

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