Topic: Growth Stocks

Investor Toolkit: 3 ways to profit from foreign investments with less risk

international stock marketsEvery Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice on a wide range of topics, including strategies for international stock markets. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Foreign investments can give your portfolio greater strength and diversity and we recommend three ways you can do this with less risk.”

We believe most investors could benefit from holding some foreign investments in their portfolios for added diversification. And growing markets like China and India have positive long-term outlooks. Their populations are generally younger than those in North America, and rising incomes are helping more of them advance into the middle class.

Still, investing internationally remains riskier than investing in North America. Many stock markets in emerging countries have language barriers, uncertain investor-protection laws, and a less pronounced commitment to openness, fairness and other qualities we tend to take for granted in established markets.

But there are 3 ways you can diminish these potential pitfalls and make it easier to profit from foreign markets:

  1. International exchange-traded funds (ETFs): Exchange-traded funds offer investors more benefits than ever before, mainly because of increased competition. That can make ETFs good choices for certain parts of your portfolio — such as the portion you devote to international investing.

    Exchange-traded funds mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that are chosen to represent the holdings that go into the calculation of the index or sub-index.

    Exchange-traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best exchange-traded funds offer well-diversified, tax-efficient portfolios with exceptionally low management fees. They are also very liquid.

    A good example of an international exchange-traded fund is ISHARES FTSE/XINHUA CHINA 25 INDEX FUND (New York symbol FXI) which was analyzed in a recent issue of our newsletter on conservative investing, Canadian Wealth Advisor. This ETF aims to track the FTSE/Xinhua China 25 Index, which is made up of the 25 largest, most liquid Chinese stocks. All of the stocks in the index trade on the Hong Kong exchange. Some also trade as American Depositary Receipts (ADRs) on the New York exchange.

    The fund’s top holdings are Tencent Holdings, 10.2%; China Construction Bank, 8.4%; China Mobile, 8.3%; Industrial & Commercial Bank, 6.9%; Bank of China, 5.4%; China Overseas Land & Investment, 4.3%; China Life, 4.0%; Ping An Insurance, 4.0%; China Shenhua Energy, 3.9%; PetroChina, 4.2%; China Merchants Bank, 3.7%; and CNOOC Ltd., 3.7%.

    The fund’s holdings give it the following industry breakdown: Financials, 54.1%; Telecommunications, 14.4%; Oil and Gas, 12.1%; Technology, 10.1%; Basic Materials, 4.0%; Industrials, 1.8%; and Consumer Goods, 1.7%. Its expense ratio is 0.73%.

    Chinese stocks are up 24% from March 2014. That’s mainly because the country’s government has committed to growth by continuing to inject money into the economy. As well, China’s economy, and especially exports, should grow as the U.S. and European economies continue to improve. We rate iShares FTSE/Xinhua China 25 Index Fund as a buy for safety-conscious investors who are willing to accept some risk.


Conservative investors have one big advantage—when you safeguard your money, you’re prepared to take advantage of the opportunities that appear as the markets move up. Opportunities like Pat McKeough’s Safety-Conscious Stock of the Year for 2013. Bank of Nova Scotia proceeded to hit all-time highs, rising by as much as 12.9% while rewarding investors with the generous 3.9% dividend yield. Pat made it his Safey-Conscious Stock of the Year again for 2014 and it’s up 20% since he picked it.

You find many more opportunities like this when you read Canadian Wealth Advisor, Pat McKeough’s newsletter for conservative investors who want to earn more with less risk. As a new subscriber you can save $50.00 on an introductory subscription. Click here to start your risk-free subscription to Canadian Wealth Advisor now.


  1. Blue-chip U.S. companies: A simple way to gain international exposure at lower risk is to invest in U.S. stocks with international operations. Many of the best blue-chip stocks in the U.S. have large customer bases in fast-growing foreign countries. This lets them benefit from a recovering global economy, as well as a return to prosperity in the U.S. A good example is Tupperware (TUP) the household products maker, which now earns 66% of its sales from emerging markets, with strong demand in countries like Brazil, China. South Africa and Turkey. We have it as a buy in our newsletter on U.S. investing, Wall Street Stock Forecaster.

    Now is a great time to add high-quality, multinational U.S. stocks to your portfolio.

  2. New York American Depositary Receipts (ADRs): An American Depositary Receipt is an investment unit for foreign companies that trade on a U.S. stock market. These units can represent fractions of shares, whole shares, or multiple shares in the foreign company. ADRs can help you simplify your international investing by letting you buy foreign shares on U.S. exchanges without the complications of buying or selling on a foreign exchange, in a foreign currency.

    You’ll need to be highly selective with these investments. Yet they can help you cut risk, because American Depositary Receipts must follow some U.S. Securities and Exchange Commission and New York Stock Exchange rules. Two examples of recommendations of ours that trade as ADRs are Japanese carmaker Honda Motor Co. (symbol HMC on New York), and BHP Billiton (symbol BHP on New York), the giant Australian resources firm. We rate both these stocks as buys in the Conservative Growth Portfolio of Wall Street Stock Forecaster.

COMMENTS PLEASE—Share your investment experience and opinions with fellow members

Do you hold investments from outside North America? Or do you have specific reasons for avoiding international investments?


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