How Can You Find Global Investment Opportunities?
By Ron DeLegge, Editor - February 12, 2009
SAN DIEGO (ETFguide.com) – If you think the U.S. stock market has been bad, you should get a load of what’s been going on overseas. As a group, both international and emerging markets stocks have fallen harder and faster than U.S. stocks. Certain individual markets like Russian stocks have crumbled almost 75% in value. Instead of making a case against investing in global stocks, it means just the opposite. This is where some of the greatest opportunities for future capital growth now reside.
What place should international stocks have inside your investment portfolio?
According to the CIA World Factbook, the world’s estimated 2008 gross domestic product (GDP) was $78.36 trillion. And of that amount, the United States accounts for just $14.33 trillion. And here’s what it means: Around $64 trillion of goods and services are coming from somewhere else. Shouldn’t your portfolio be participating in the goods and services being produced from around the world?
Here’s a short list of 4 international stock ETFs that can help you to capitalize:
Vanguard Europe Pacific ETF (NYSEArca: VEA)
This international stock ETF follows the MSCI EAFE Index, a popular benchmark of international stocks. The top countries represented inside EFA are Japan (25.17%), United Kingdom (19.75%), and France (10.76%). The fund’s largest industry sector weightings are financials (22.51%), industrials (11.49%), and consumer staples (10.11%). VEA competes with an identical offering from iShares (NYSEArca: EFA), but its annual costs are approximately half less. (For investors seeking more focused exposure on Asian or European stocks, the Vanguard European ETF (NYSEArca: VGK) and Pacific ETF (NYSEArca: VPL) divide the MSCI EAFE index into half by focusing on equities in specific world regions.)
In 2008, VEA lost 41.29% compared to a 37.38% decline in the SPDR S&P 500 ETF (AMEX: SPY). VEA’s annual expenses are 0.12%.
iShares MSCI EAFE Value (NYSEArca: EFV) and Growth (NYSEArca: EFG)
The iShares offer two specialized versions of the widely tracked MSCI EAFE index: growth and value. The difference between growth and value investing is simple. Growth stocks generally have higher forecasted growth rates and lower dividend yields. In contrast, value stocks have higher book value to price ratios, higher forward earnings to price ratios, and higher dividend yields.
In 2008, neither growth nor value investing had an advantage. The iShares MSCI EAFE Value (NYSE: EFV) declined 43.92% compared to a 42.43% loss for the iShares MSCI EAFE Growth ETF (NYSE: EFG). Both ETFs have modest annual expense ratios of 0.40%.
SPDR MSCI ACWI ex-US ETF (NYSEArca: CWI)
This international stock ETF from State Street Global Advisors combines exposure to both developed and emerging market stocks all in one package. Approximately 80 percent exposure is to developed international markets and the remaining 20 percent is in emerging markets. The United Kingdom and Japan are among the largest individual country positions. France, Germany, and Switzerland each account for roughly 5 percent positions. Top emerging countries represented inside CWI are Hong Kong, South Korea, and Taiwan.
In 2008, CWI fell 44.28% compared to a 37.38% decline in the SPDR S&P 500 ETF (AMEX: SPY). CWI’s annual expenses are 0.35%.
WisdomTree Europe Dividend Index (NYSEArca: DEB)
DEB screens for publicly traded companies in developed European nations that pay regular cash dividends. After being selected, stocks are weighted in the index based on annual cash dividends paid. DEB’s dividend yield is currently around 7%.
In 2008, DEB declined by 44.69% compared to a 37.38% decline in the SPDR S&P 500 ETF (AMEX: SPY). DEB’s annual expenses are 0.48%.
Think Global, Be Global
Just because international and emerging markets stocks have recently performed worse than U.S. stocks, does not mean you should exclude them from your portfolio. If you’re not comfortable with international stocks, simply make them a smaller percentage of your total portfolio’s asset allocation. Also, before you start dabbling with single country ETFs that are typically more concentrated and more volatile, make sure you’ve first laid the foundation of international exposure with broadly diversified international stock ETFs.
Also keep in mind that international stock ETFs can play an important role in strategic moves. For example, you can overweight or underweight specific international markets. In our ETF Profit Strategy’s Picks, we featured and analyzed one international ETF that’s risen more than 45%. Make informed investment decisions by learning more.