So you're worried that the markets have overextended themselves. And while you believe that there's plenty of reason for large cap European value stocks to perform, you worry about putting more money to work. Is there a way to invest in similar stuff, while minimizing a bit of the risk?
The iShares S&P Europe 350 Index (NYSEARCA:IEV) has seen about 28% appreciation over 1 year. However, with nearly 1/3 of the index in financials, one might wonder if he/she is tilted too far towards the banks. Not to mention that last year's May-June 15% drop from top to bottom in IEVmight be gut-wrenching for some investors.
Fortunately, there's an indexing alternative that correlates highly to the IEV with less risk. When IEV fell 10% in February 2007, this alternative investment dropped a mere 4.7%. And while the 28% 1-year, rolling returns are impressive for IEV, this "other" index achieved nearly 28% as well... but with significantly less downside pressure.
Enter the iShares S&P Global Consumer Staples Index Fund (NYSEARCA:KXI). This exchange-traded fund, KXI, holds many of the same companies: Tesco, Diageo, Unilever, British Tobacco. Yet the focus on toilet paper and toothpaste stocks is less worrisome (for some) than a heavy allocation to financials.
In a hot market that is climbing like gangbusters, you may not feel so hot about KXI. Yet if slow and steady is going to win the race, it's hard to argue against the risk-adjusted performance of KXI.
One final bit of guidance here. KXI is a global fund with a 50% weighting in U.S companies. IEV is Europe down to its utter core. The decision to go global versus international needs to be yours and yours alone. (That said, the high correlation between the two investments, the difference in risk, and similarity in performance speak volumes!)
KXI vs. IEV 6 month chart:
Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.