We think conservative investors can hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus.
The best ETFs 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 buys:
ISHARES MSCI EMERGING MARKETS INDEX FUND (New York symbol EEM; buy or sell through brokers) aims to track the MSCI Emerging Markets Index.
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The fund’s geographic breakdown includes China, 24.0%; South Korea, 15.3%; Taiwan, 12.8%; India, 8.0%; South Africa, 6.4%; Brazil, 5.7%; Mexico, 4.6%; Russia, 3.7%; Malaysia, 3.5%; Indonesia, 3.0%; Thailand, 2.3%; and Turkey, 1.5%.
Its top holdings are Samsung Electronics (South Korea), 3.4%; Taiwan Semiconductor (computer chips), 3.4%; Tencent Holdings (China: Internet), 3.2%; China Mobile, 2.0%; Naspers (South Africa: media and Internet), 1.6%; China Construction Bank, 1.5%; Industrial & Commercial Bank of China, 1.1%; and Hon Hai Precision (Taiwan), 1.0%.
iShares launched the ETF on April 7, 2003. Its expense ratio is 0.70%.
Emerging markets are still more volatile and vulnerable to economic downturns than developed nations. But this fund’s broad diversification among these 12 countries tones down its risk.
Recommendation in Canadian Wealth Advisor: BUY for aggressive investors.
ISHARES MSCI AUSTRALIA ETF (New York symbol EWA; buy or sell through brokers) is an ETF that holds 73 major Australian stocks.
The fund’s top holdings include Commonwealth Bank of Australia, 11.3%; Westpac Banking Corp., 8.6%; Australia and New Zealand Banking Group, 6.3%; National Australia Bank, 6.0%; BHP Billiton, 5.2%; CSL Ltd., 4.5%; Wesfarmers, 3.9%; Woolworths Ltd., 2.4%; Scentre Group, 2.1%; and Telstra Corp., 2.0%.
The ETF’s industry breakdown consists of Financials, 52.2%; Mining, 12.8%; Consumer Staples, 7.8%; Health Care, 6.6%; Industrials, 6.6%; Energy, 4.8%; Utilities, 2.7%; Telecommunications, 2.7%; and Consumer Discretionary, 2.4%.
The iShares MSCI Australia ETF was launched on March 12, 1996. It has a 0.48% expense ratio.
Australia benefits from its stable banking and political systems. It is also rich in natural resources. While low commodity prices have hurt the country’s economy, its proximity to Asian markets, including India and China, gives it strong long-term prospects.
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CRM2 is going to see demand for ETFs shoot up like a firecracker. I’ve seen them as a strong alternative to mutual funds for a while now. Soon thousands of investors will be thinking the same way when they see how their brokers’ trailer fees add up.
I agree. ETFs are a way better alternative to high-fee mutual funds. Love the look of the new site by the way.
I love the new web site and all the good advice———great job