This article delves into the concept of international ETFs
Investing in international Exchange-Traded Funds (ETFs) is an increasingly popular strategy for investors looking to diversify their portfolios beyond domestic markets. By holding a variety of assets from different countries, investors can reduce risk, capitalize on global growth opportunities, and potentially enhance returns.
In today’s interconnected world, relying solely on a single country’s financial markets may expose one’s portfolio to heightened risks, such as economic downturns, political instability, or currency fluctuations. International ETFs offer an efficient and accessible way to achieve global diversification.
This article delves into the concept of international ETFs, their advantages, and the top international ETFs that can help investors achieve global diversification.
Understanding International ETFs: What Are They?
International ETFs are investment funds that trade on a stock exchange and track the performance of a basket of stocks from companies based outside the investor’s home country. These funds are designed to provide exposure to various markets around the globe, including developed, emerging, and frontier markets. The primary goal is to diversify risk and gain access to growth opportunities not available in domestic markets.
There are several types of international ETFs, each with a different focus:
Broad-Based International ETFs: These ETFs invest in a wide range of global stocks across multiple countries and regions. They provide exposure to both developed and emerging markets, offering a balanced approach to global diversification.
Single-Country ETFs: These funds focus on stocks from a specific country, such as Japan, China, or Germany, allowing investors to target markets.
Regional ETFs: These ETFs invest in stocks from a specific region, such as Europe, Asia-Pacific, or Latin America, enabling investors to concentrate on regional growth opportunities.
Sector-Specific International ETFs: These funds target specific sectors, such as technology, healthcare, or energy, within international markets, providing a way to diversify by industry.
Why Invest in International ETFs?
Investing in international ETFs offers several benefits for investors seeking global diversification:
Risk Reduction: By spreading investments across multiple countries, investors can mitigate the risk of underperformance in any one market. Political instability, economic downturns, and regulatory changes in a single country can negatively impact its stock market. International ETFs help reduce the impact of such risks by diversifying across multiple markets.
Exposure to Global Growth: International ETFs allow investors to participate in the growth of various economies, including emerging markets with high growth potential. While developed markets like the United States and Europe may offer stability, emerging markets like India, Brazil, and China can provide substantial growth opportunities.
Currency Diversification: Investing in international ETFs exposes investors to different currencies. This can act as a hedge against domestic currency depreciation and offer opportunities to benefit from favorable exchange rate movements.
Access to Different Economic Cycles: Different countries often have varying economic cycles. By investing internationally, investors can take advantage of growth in economies that may be at different points in their economic cycle, thus balancing their overall portfolio performance.
Cost Efficiency: International ETFs offer a cost-effective way to gain exposure to a diversified portfolio of international stocks. They typically have lower fees than actively managed mutual funds, making them an attractive option for cost-conscious investors.
Top International ETFs for Global Diversification
Now, let’s explore some of the top international ETFs that can help investors achieve effective global diversification. These ETFs have been selected based on their performance, expense ratios, asset allocation, and market coverage.
1. Vanguard Total International Stock ETF (VXUS)
The Vanguard Total International Stock ETF (VXUS) is one of the most popular and widely held international ETFs. It provides exposure to a broad range of stocks from developed and emerging markets, excluding the United States. The fund invests in over 7,000 stocks from around the world, offering comprehensive global diversification.
VXUS tracks the FTSE Global All Cap ex US Index, which includes large-, mid-, and small-cap companies across various sectors. The fund’s top holdings include stocks from countries like Japan, the United Kingdom, China, Canada, and Switzerland. With a low expense ratio of around 0.08%, VXUS is an attractive option for investors seeking low-cost exposure to international markets.
VXUS’s diversified portfolio and low costs make it a solid choice for long-term investors looking to balance their portfolios with international exposure. Its large number of holdings helps mitigate risk while offering potential growth opportunities from global markets.
2. iShares MSCI ACWI ex U.S. ETF (ACWX)
The iShares MSCI ACWI ex U.S. ETF (ACWX) is another excellent option for investors seeking broad international exposure. This ETF aims to track the performance of the MSCI All Country World Index (ACWI) excluding the United States, providing access to stocks from over 40 countries, including both developed and emerging markets.
ACWX’s portfolio comprises more than 2,000 stocks, covering a wide range of sectors and industries. Its top holdings include multinational companies like Taiwan Semiconductor Manufacturing, Samsung Electronics, Nestle, and Roche. The fund has a relatively low expense ratio of 0.32%, making it a cost-effective choice for global diversification.
Investors interested in a balanced approach that includes exposure to both established markets and emerging economies will find ACWX appealing. The fund’s broad-based approach helps to capture growth potential from across the globe, while its exclusion of U.S. stocks provides a true international focus.
3. SPDR S&P International Dividend ETF (DWX)
For income-focused investors, the SPDR S&P International Dividend ETF (DWX) offers exposure to high-yielding international dividend stocks. DWX aims to track the S&P International Dividend Opportunities Index, which comprises 100 of the highest-yielding, dividend-paying companies from developed and emerging markets outside the United States.
The fund’s top holdings include companies from a diverse range of countries, such as the United Kingdom, Canada, Australia, and Japan. The ETF is well-diversified across various sectors, including financials, utilities, and consumer staples. DWX has an expense ratio of 0.45%, which is slightly higher than some other international ETFs, but it offers the benefit of regular income from dividends.
DWX is an ideal choice for investors looking to diversify their portfolios while also generating a steady income stream from international dividend stocks. Its focus on high-yielding companies can provide stability and downside protection in volatile markets.
4. iShares MSCI Emerging Markets ETF (EEM)
The iShares MSCI Emerging Markets ETF (EEM) is a well-known ETF that provides exposure to stocks from emerging markets worldwide. EEM aims to track the performance of the MSCI Emerging Markets Index, which includes companies from 26 emerging economies, such as China, India, Brazil, South Africa, and South Korea.
EEM has a diversified portfolio of over 1,200 stocks, representing a wide range of sectors, including technology, financials, and consumer discretionary. The fund’s top holdings include major companies like Alibaba Group, Tencent Holdings, Samsung Electronics, and Taiwan Semiconductor Manufacturing. With an expense ratio of 0.68%, EEM is slightly more expensive than some other international ETFs, but it offers access to high-growth potential markets.
Investors looking to tap into the growth potential of emerging economies will find EEM to be a suitable choice. While it carries higher risks due to market volatility and political instability in some regions, it also offers the opportunity for significant returns.
5. Invesco International Dividend Achievers ETF (PID)
The Invesco International Dividend Achievers ETF (PID) is designed for investors seeking exposure to international companies with a strong track record of dividend growth. PID tracks the performance of the NASDAQ International Dividend Achievers Index, which includes companies that have consistently increased their dividends over time.
PID’s portfolio consists of high-quality companies from various sectors, including utilities, energy, consumer goods, and financials. The fund’s top holdings include names like Enbridge, Canadian National Railway, and TransCanada Corporation. PID has a relatively low expense ratio of 0.55%, making it an attractive option for dividend-focused investors.
This ETF is ideal for those who want to combine the benefits of international diversification with the stability and income provided by companies that consistently grow their dividends. It is particularly appealing to income-seeking investors looking for exposure to stable, high-quality companies outside the United States.
6. Franklin FTSE Europe ETF (FLEE)
The Franklin FTSE Europe ETF (FLEE) offers focused exposure to European markets. This ETF aims to track the FTSE Developed Europe RIC Capped Index, providing access to large- and mid-cap companies across developed European countries, including the United Kingdom, Germany, France, Switzerland, and the Netherlands.
FLEE’s top holdings include major European companies like Nestle, ASML Holding, LVMH, and Roche Holding. The fund has an extremely low expense ratio of 0.09%, making it one of the most cost-effective ways to gain exposure to European stocks.
Investors who are bullish on the growth prospects of European markets or who want to diversify their portfolios by adding regional exposure will find FLEE to be an excellent choice. Its low cost and focus on well-established companies in stable economies make it a compelling option for global diversification.
7. iShares MSCI Japan ETF (EWJ)
The iShares MSCI Japan ETF (EWJ) is a popular choice for investors looking to gain exposure to the Japanese stock market. EWJ aims to track the performance of the MSCI Japan Index, which comprises large- and mid-cap stocks from various sectors in Japan.
EWJ’s portfolio includes well-known Japanese companies like Toyota Motor, Sony Group, Mitsubishi UFJ Financial Group, and SoftBank Group. The fund provides targeted exposure to Japan’s unique market dynamics and opportunities, including its strong technology and industrial sectors. With an expense ratio of 0.51%, EWJ is relatively affordable for those looking to invest in Japan.
Japan is the world’s third-largest economy and has a well-developed, highly diversified market. EWJ offers a way for investors to tap into Japan’s economic potential, benefit from its global exports, and gain exposure to its innovation-driven industries.
8. iShares Core MSCI Pacific ETF (IPAC)
The iShares Core MSCI Pacific ETF (IPAC) provides exposure to developed markets in the Pacific region, including Japan, Australia, Hong Kong, New Zealand, and Singapore. IPAC aims to track the performance of the MSCI Pacific Investable Market Index, covering large-, mid-, and small-cap stocks across these countries.
The fund’s portfolio includes a mix of companies from various sectors, such as technology, financials, and consumer goods. Some of its top holdings include Toyota Motor, AIA Group, and Commonwealth Bank of Australia. IPAC has a low expense ratio of 0.09%, making it an attractive option for investors seeking cost-effective exposure to the Pacific region.
IPAC is suitable for investors looking to diversify their portfolios with exposure to stable, developed markets in the Asia-Pacific region. It provides a balanced mix of growth potential from dynamic economies and stability from well-established markets.
9. Schwab International Equity ETF (SCHF)
The Schwab International Equity ETF (SCHF) is a cost-effective option for investors looking to diversify internationally. SCHF aims to track the FTSE Developed ex US Index, providing exposure to large- and mid-cap stocks from over 20 developed countries outside the United States.
SCHF’s portfolio includes companies from Europe, Asia, and Canada, with top holdings such as Nestle, Roche Holding, Samsung Electronics, and Toyota Motor. The ETF has a very low expense ratio of 0.06%, making it one of the cheapest options for broad international exposure.
Investors who want to diversify their portfolios with a focus on developed markets while minimizing costs will find SCHF to be an excellent choice. Its low expense ratio and broad market coverage make it a core holding for those seeking global diversification.
10. Xtrackers MSCI All World ex U.S. High Dividend Yield Equity ETF (HDAW)
The Xtrackers MSCI All World ex U.S. High Dividend Yield Equity ETF (HDAW) focuses on high-dividend-yielding companies from developed and emerging markets outside the United States. HDAW aims to track the MSCI ACWI ex USA High Dividend Yield Index, which includes companies with a history of consistent and sustainable dividend payments.
HDAW’s portfolio is diversified across multiple countries and sectors, with top holdings such as Novartis, British American Tobacco, and TotalEnergies. The fund has an expense ratio of 0.20%, providing a balance between cost efficiency and income generation.
Investors seeking a combination of global diversification and income from dividends will find HDAW to be an appealing option. The fund’s focus on high-quality, dividend-paying companies offers the potential for steady income and growth.
The Power of Global Diversification Through International ETFs
Investing in international ETFs is a strategic way to diversify a portfolio, reduce risk, and tap into global growth opportunities. By choosing from a range of ETFs that offer exposure to different regions, countries, and sectors, investors can build a well-rounded portfolio that is better equipped to withstand market volatility and capitalize on global trends.
The top international ETFs listed in this article offer a variety of options to suit different investment goals, whether you are seeking broad global exposure, focused regional or sector-specific investments, or income through dividends. Each ETF has its own unique characteristics, such as expense ratios, market coverage, and investment strategies, allowing investors to select those that align with their preferences and risk tolerance.
As the global economy continues to evolve, international ETFs provide a valuable tool for achieving diversification, enhancing returns, and managing risk in a dynamic investment landscape. By incorporating these top international ETFs into their portfolios, investors can better position themselves to navigate the complexities of global markets and achieve long-term financial success.
