Broad Developed Market ETFs List
(click on symbol for data and articles)
Multi-Region Developed Market ETFs
BLDRS Developed Markets 100 ADR Index Fund (NASDAQ:ADRD)
Claymore/Robeco Developed International Equity ETF (NYSE:EEN)
GlobalShares FTSE Developed Countries ex-U.S. Fund (GSD)
iShares S&P Global 100 Index Fund (NYSEARCA:IOO)
iShares MSCI EAFE Index Fund (NYSEARCA:EFA)
iShares FTSE Developed Small Cap ex-North America Index Fund (NASDAQ:IFSM)
Schwab International Small-Cap Equity ETF (NYSEARCA:SCHC)
PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio (NYSEARCA:PXF)
PowerShares FTSE RAFI Developed Markets ex-U.S. Small-Mid Portfolio (NYSEARCA:PDN)
RevenueShares ADR Fund ETF (NYSEARCA:RTR)
Vanguard Europe Pacific ETF (NYSEARCA:VEA)
BLDRS Europe 100 ADR Index Fund (NASDAQ:ADRU)
DJ EURO STOXX 50 ETF (NYSEARCA:FEZ)
DJ STOXX 50 ETF (NYSEARCA:FEU)
iShares MSCI EMU Index Fund (NYSEARCA:EZU)
iShares S&P Europe 350 Index Fund (NYSEARCA:IEV)
Merrill Lynch Europe 2001 HOLDRs (NASDAQ:EKH)
PowerShares FTSE RAFI Europe Portfolio (PEF)
Vanguard European ETF (NYSEARCA:VGK)
What Are They?
- Broad and Regional Developed Market ETFs cover multiple developed countries' stocks in a single ETF. Those markets include countries in Western Europe and North America, as well as developed countries in the Asia Pacific region such as Australia and Japan.
- These ETFs are typically based on market-cap weighted indexes, and are therefore dominated by large cap stocks.
- The most popular broad index for developed market stocks is the MSCI EAFE index, tracked by the iShares MSCI EAFE Index Fund (EFA). EFA is Barclay's largest ETF by far, and accounts for about 10% of US ETF assets. Other ETFs in this list track indexes containing only ADRs (American Depository Receipts), ie. foreign stocks that trade on US exchanges, while others track indexes based on foreign stock markets.
Why & How To Use Them
- Foreign stocks are an integral part of any diversified portfolio. The easiest way to include them is with broad-based ETFs.
- Emerging markets and developed markets have very different characteristics, so they're different asset classes that are worth including with separate ETFs. Splitting developed and emerging market stocks into separate ETFs also provides you with better rebalancing opportunities.
- Due to their breadth and liquidity, these ETFs tend to be cheaper than single country ETFs, with lower expense ratios and fairly narrow bid-ask spreads. In most cases, their costs are significantly lower than those of foreign stock mutual funds.
What to Look Out For
- ETFs that track indexes containing only ADRs tend to be narrower and less representative of a country's or region's economy than ETFs based on foreign stock markets. ADRs tend also to be large caps only. However, if the US markets have tighter accounting or other standards than the foreign markets, then a basket of ADRs may be safer or may perform better than a broader basket of foreign stocks.
- Foreign stock ETFs tend to have higher expense ratios than US stock ETFs, and the range is wider. So shop around for the lowest expense ratio ETF.
- There are significant differences between these ETFs. While most are traditional market cap weighted index funds, the Claymore, PowerShares and Merrill Lynch HOLDRs are not.
- Merrill Lynch HOLDRs are fixed baskets of stocks that were created for traders to "play" hot asset classes rather than for diversified portfolio construction. Over time they become less and less representative of their asset class, and therefore become less suitable for long term portfolios.
- Vanguard ETFs tend to have extremely low expense ratios and low tracking error (divergence from their benchmarket indexes). But they also have a different structure (see Further Reading below) that might lead to lower tax efficiency for long-term investors.
- Articles that discuss specific ETFs in this list: New Vanguard Europe Pacific ETF Is Much Cheaper Than the Competition (Matt Hougan), Claymore Takes Quant Investing Global With Two New ETFs (Matt Hougan), Vanguard Announces More Cheap International Exposure (Richard Kang), Vanguard Wages Price War Against Barclays' EFA With New Europe Pacific ETF (Tom Lydon), Claymore's International Rotation ETF Challenges iShares MSCI (Carl T. Delfeld).
- International ETFs will provide diversification to a US stock portfolio only if foreign stocks have low correlation with US stocks. Geoff Considine discusses this issue in Should You Add International ETFs to Your Portfolio? and other articles.
- An alternative to buying separate ETFs to cover emerging and developed stock markets is to buy a broad ETF that covers both. See Broad and Regional International ETFs.
- The PowerShares RAFI ETFs use fundamental indexing. For a discussion of fundamental indexing, see this interview with WisdomTree's Director of Research, Luciano Siracusano.
- Vanguard ETFs are cheap and well managed, but have a different structure from those of other providers. For more discussion of this, see J.D. Steinhilber's VIPERs Provide Lowest-Cost International ETF Alternative and Herb Morgan's The Problem With Vanguard VIPERs ETFs.
- For more information on the choice between broad foreign stock funds and single country funds, see Gary Gordon's International ETFs: Be Aware of Extreme Single Stock Exposure and Broad and Regional Emerging Market ETFs.
This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.