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A Guide to International Equity ETFs

Jun 25 2007, 09:17 by: SA Editors

The Full List

What Are They?

  • Single country funds -- ETFs (exchange-traded funds), ETNs (exchange-traded notes) and CEFs (closed-end funds) -- provide investors with exposure to foreign stocks on a country by country basis, in contrast to broad and regional funds which cover multiple countries' stocks in a single ETF.
  • Single country ETFs and CEFs usually provide exposure to foreign stocks that don't trade on US exchanges, though sometimes they are limited to stocks that trade in the US as ADRs (American Depository Receipts).
  • ETFs and ETNs are typically index funds which trade close to or at their underlying asset value. In contrast, closed-end funds tend to be actively managed, and due to their structure can trade at significant premia or discounts to their net asset values.

Why & How To Use Them

  • If you're a long term investor looking to build a diversified portfolio that includes foreign stocks, you'll need to decide whether to use a few broad foreign stock ETFs or a collection of single country ETFs and closed-end funds. Broader funds tend to be cheaper and easier to manage. Since ETFs are usually market cap weighted, a broad or regional foreign stock ETF will provide exposure to countries proportionate to the size of their stock markets. In contrast, single country funds allow you to overweight countries that you believe will perform better.
  • If you decide on single country funds, you'll need to chose between using an ETF or a CEF for any given country. ETFs (exchange-traded funds) appeal to investors looking for maximum diversification, low cost and an indexing approach. CEFs (closed-end funds) offer opportunities to investors looking for a more active approach to management. We've grouped the ETFs and CEFs together by country below, so you can see the choice of ETFs and CEFs for each country.
  • Closed-end funds may be attractive when they trade at discounts to net asset value, despite their higher expense ratios and more limited holdings. For more on this important issue, see Further Reading below.

What to Look Out For

  • Compared to broad or regional foreign stock ETFs, single country ETFs tend to have higher expense ratios, have been criticised for wide tracking error (divergence from their underlying indexes), and may suffer from wider bid-ask spreads.
  • Closed-end funds tend to have higher expense ratios than ETFs, and may be more expensive to purchase and sell as their lower trading volume may result in wider bid-ask spreads.
  • Closed-end funds are a specialty. A CEF may look attractive if it trades at a discount to net asset value, but discounts may persist for long periods of time, and higher expenses and poor active management might lead to underperformance. See Further Reading below for more on investing in CEFs.
  • You can track performance on Seeking Alpha's Countries Data Dashboard, Global & Regions Data Dashboard, and Emerging Markets Data Dashboard.

Further Reading

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.