Global corporations Sinopec, Vitol, Total and Glencore each earn at least $200 billion in annual sales — but you’ve probably never heard of them.It’s the lack of familiarity with the world’s top global companies that keeps many of us from investing in foreign markets.
But in the past decade, the rules of the game have changed — for the better.
Rather than trying to figure which foreign companies should be in a well-rounded portfolio, many investors are seeking a new class of exchange-traded funds (ETFs) that provides all of the international exposure you’ll ever need.
They’re called “single-country funds” or “country-specific ETFs.” For example, if you think top Japanese companies will benefit from rising trade with China, you might want to check out the iShares MSCI Japan Index. This ETFowns big stakes in Toyota, Canon, Honda, Softbank (the country’s leading internet provider) and Takeda Pharmaceuticals, one of the world’s largest drug makers — among many others.
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You can now choose from dozens of ETF options, and some of the ETF providers provide country-specific exposure with unique twists. For example, Wisdom Tree’s ETF strategists are big fans of dividend-paying stocks, so they offer ETFs such as the Wisdom Tree Australia Dividend Fund, the Japan SmallCap Dividend Fund and the Wisdom Tree Middle East Dividend Fund. Wisdom Tree also offers ETFs that focus on foreign bonds, currencies and even specific global industries such as real estate and electric utilities.
You can read more about Wisdom Tree’s offerings by clicking here.
In addition to Wisdom Tree, three other ETF providers offer the bulk of country fund offerings: Barclays (the sponsor of the top-selling iShares funds), Global X and Market Vectors. Let’s take a closer look.
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This family of funds is the most extensive, with a specific ETF geared toward more than 30 countries. In fact, if you are looking to target specific countries such as Turkey, Belgium or Malaysia, these funds are your only direct path to them. Many of these funds have been around for more than a decade and have become quite popular with investors.
The ETF strategists at Global X likely realised the iShares platform already covered many bases, so they’ve constructed ETFs that take a slight detour from the traditional country-fund ETF approach. For example, the Global X FTSE Nordic Region ETF provides exposure across Scandinavia, while the Global X Andean 40 ETF focused on the largest companies among the Andean nations of South America.
Although Van Eck, the sponsor of Market Vectors ETFs, offers a half-dozen funds focused on specific countries such as Poland, Russia, Egypt and Colombia, there are also a smattering of regional thematic ETFs, including:
- Africa Index ETF
- Gulf States Index ETF
- Latin America Small-Cap Index
When these funds catch on with investors, they can really take off. The Market Vectors Vietnam ETF, for example, surged nearly 50% from December 2012 to February 2013 as that country’s economy appears to be building a head of steam.
The Investing Answer: So how have all of these ETFs performed in recent years? Well, it’s important to remember the old phrase, “When the U.S. sneezes, the world catches a cold.” That means these funds have generally fared well over the past half-decade but slumped badly in 2008 and early 2009 when our markets fell sharply.
Yet over the long haul, many of these countries are likely to keep boosting their economies at a fast pace. Indeed the IMF expects global economic growth outside the United States and Western Europe to approach 6% in 2013. And many economists expect that trend to continue — unless our economy, which accounts for 25% of global GDP, hits another rough patch.
Disclosure: Wisdom Tree’s founder, Jono Steinberg, is a former superior of David Sterman.