Topic: ETFs

Two overseas ETFs tap strong international leaders

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 continue to offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks. Here’s a look at two international ETFs we see as suitable for new buying.

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ISHARES MSCI GERMANY FUND $27.01 (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; that’s partly due to limitations on foreign ownership.

The fund’s top stocks are SAP (software), 8.7%; Allianz (insurance), 7.7%; Siemens (engineering conglomerate), 7.4%; Bayer (diversified chemicals), 6.1%; BASF (chemicals), 5.7%; Daimler (automobiles), 4.6%; Deutsche Telekom, 4.5%; Adidas AG, 3.7%; Deutsche Post, 2.7%; Munich Re (insurance), 2.8%; and Volkswagen, 2.7%. The ETF began trading in March 1996 and offers a 2.8% yield. Its MER is 0.50%.

Germany’s export-oriented economy faces a number of challenges. The trade war between China and the U.S., two of Germany’s biggest trade partners, adds uncertainty. The final terms of Brexit and its effect on the European economy is also unclear. Still, the country’s outlook remains positive.

German Chancellor Angela Merkel will now step down as her party’s leader before the next general election in 2021. Meanwhile, though, the coalition government between her Christian Democrat party and the Social Democrats is holding. The “grand coalition” requires her to keep spending high, mostly on welfare benefits. But while that’s a departure from Germany’s traditional fiscal restraint, it should keep stimulating economic growth.

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

ETFs: A second ETF from down under

ISHARES MSCI AUSTRALIA ETF $20.69 (New York symbol EWA; buy or sell through brokers) is an ETF that holds 70 major Australian stocks.

The fund’s top holdings are Commonwealth Bank of Australia, 9.9%; BHP Billiton, 7.6%; CSL, 7.0%; Westpac Banking, 6.9%; Australia and New Zealand Banking, 5.8%; National Australia Bank, 5.3%; Woolworths, 3.1%; Macquarie, 3.0%; Wesfarmers, 2.9%; and Woodside Petroleum, 2.5%.

By industry, the ETF’s holdings include Financials, 37.7%; Mining, 17.3%; Health Care, 9.3%; Real Estate, 7.5%; Energy, 6.3%; Industrials, 5.9%; Consumer Discretionary, 5.6%; Consumer Staples, 5.4%; Telecom, 1.5%; Information Technology, 0.7%; and Utilities, 0.7%.

The iShares MSCI Australia ETF started up March 12, 1996. The fund has a 0.50% expense ratio. The ETF currently offers a high 5.5% yield.

Australia benefits from its stable banking and political systems. It’s 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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