International ETFs are one way to diversify a portfolio of U.S. stocks. Most investors gravitate to ETFs tracking the MSCI EAFE Index, the well-established benchmark for international developed markets.

However, there are many ways to carve up non-U.S. stocks that are worthy of consideration.

When it comes to developed foreign market exposure, most investors turn to the third largest U.S.-listed ETF, the iShares MSCI EAFE Index Fund ETF (EFA), with $36.5 billion in assets. The ETFs almost fully replicates the MSCI Europe, Australasia and Far East Index, which holds large- and mid-cap companies listed in developed Asian and European markets. EFA has a 0.34% expense ratio, 925 holdings and a 3.33% yield.

EFA's sector allocations include financials 23.2%, industrials 12.4%, consumer staples 11.8%, consumer discretionary 10.3%, health care 10.0%, materials 9.5%, energy 8.4%, telecom 5.4%, information tech. 4.2%, and utilities 4.0%. Country allocations include U.K.

In a matter of hours, the European Central Bank (ECB) as well as the People’s Bank of China (PBOC) lowered key interest rates. For that matter, the Bank of England stepped up its bond-purchasing, quantitative easing program.

In the recent past, stimulative measures might have been seen as a positive for stocks of faltering economies. The measures might even have been viewed as a benefit to nations around the world that export their wares.

However, the initial reaction by foreign equity ETFs was rather uninspiring. For example, through the first half of Thursday’s trading session, the Vanguard MSCI EAFE Index Fund (VEA) retreated by roughly -1.35%.

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Granted, the U.S. Dollar Index (DXY) and its exchange-traded proxy, PowerShares DB Dollar Bullish (UUP), have a lot to do with poor performance in foreign markets. Most of the exchange-traded stock funds are not hedged for currency changes.

Filling in what had become one of the most glaring holes in the ETF lineup, ProShares last week introduced a product that will allow investors to bet against the beleaguered currency of the Euro zone. The new ProShares Short Euro (EUFX) will seek to deliver daily returns that correspond to -100% of the daily change in the U.S. dollar value of the euro (specifically, the 4:00 ET EUR/USD cross rate as published by Bloomberg). Somewhat surprisingly, EUFX is the first exchange-traded product available to U.S. investors that seeks to accomplish that objective, giving those with a strong opinion on the outlook of the currency a tool for betting on a decline.

EUFX has already attracted the attention of investors looking to hedge euro exposure or simply bet against a decline in value; more than 18,000 shares traded hands yesterday, and the daily volume has gone as high as 42,000

The curtain is about to drop on 2011, a year that will go down as a record-breaking period for the rapidly-expanding ETF industry. More than 300 exchange-traded products began trading this year, with dozens of issuers rolling out new products. While some of the new additions bear a striking resemblance to more established products on the market, the recent growth has been market by innovation that has made new asset classes and strategies available through the exchange-traded wrapper.

In a year full of ETF firsts, a few developments are particularly noteworthy; below, we highlight some of the events of the past year in the ETF world that have had the biggest impact on the way financial advisors and investors manage their portfolios.

1. Investment Discipline / Factor ETFs

One of the more exciting developments over the last year has been the launch of products that combine popular investment

IndexUniverse reported that Global X will be closing several ETFs for lack of AUM. Included in the list are the Fishing ETF (FISN) and the Farming ETF (BARN). Both fisheries (although subtle, I think this would have been a better name than fishing) and farming are themes that I have written about many times and I continue to believe are valid.

However stocks in both, as I mentioned recently in another post, are far more volatile than the underlying demand for protein. Look at the charts for the companies in the funds and you will see they are difficult to own. The combination of being difficult and unlucky timing is what hurt these funds, in my opinion. At some point the stocks within will again catch fire but obviously at that time investors will only have individual stocks to choose from.

The funds got made fun of a lot

WisdomTree, the New York-based ETF issuer, revealed more plans to expand its lineup of exchange traded products with SEC filings for two international ETFs. The proposed funds helped to kick off WisdomTree’s move to the Nasdaq for its own stock (WETF) and look to move the company’s ETF lineup towards the 50 product mark. While expense ratios or ticker symbols were not released for either one of the proposed products, we have highlighted some of the key details from the filing below.

Germany Hedged Equity Fund

According to the recent SEC filing, this proposed fund will track the WisdomTree Germany Hedged Equity Index, which offers investors exposure to German equity markets while at the time offsetting exposure to fluctuations of the value relative to the American currency. The index will only include German securities that have a minimum market cap of at least $1 billion and the underlying securities

New product introductions kept flowing in June, though behind the pace of recent months, with the listing of 31 new ETFs and three new ETNs. This is the lowest monthly figure since February. There were 38 launches in March, 43 in April, and 39 in May. No ETPs were taken off the market, so total listings now stand at 1,288 (1,120 ETFs and 168 ETNs).

The number of actively-managed ETFs jumped to 40 after staying at 34 for a number of months. The increase was the result of two Guggenheim funds being converted from passive to active on June 1 and four new ETFS from AdvisorShares.

Trading activity edged upward in June, with total ETP dollar volume increasing 7.4% to $1.67 trillion. The billion dollar club, those ETFs averaging more than $1 billion in daily trading activity, shrank from11 to nine. Those nine still accounted for more than

June was another interesting month for markets around the world as a number of important events transpired over the past few weeks. The Federal Reserve meeting came and went without much of a hitch as Bernanke called for the end of QE at the end of the month but suggested that the economy was still too weak to consider raising rates any time soon. While this was undoubtedly an important event, investors focused in on the eurozone and the ongoing debt crisis rocking many of the peripheral members. The focus was especially on Greece, as Athens debated on the merits of another round of austerity measures before voting them in by a slim five vote margin in the final days of June. This helped to ease investor concerns heading into the second half of the year, allowing the S&P 500 to gain back much of the losses that it experienced

Deutsche Bank is involved with 39 ETPs (Exchange Traded Products) listed for trading in the U.S. marketed under the Invesco PowerShares brand. Last Thursday (6/9/11), it went solo for the first time in the U.S. by launching five new ETFs under it own db-X brand, bringing the product count to 44.

For U.S. dollar based investors, the performance from an international stock investment is typically determined by adding the return of the stock in its local currency to the percentage change of that currency relative to the U.S. dollar. In other words, the investment provides you with both stock and currency exposure.

These new db-X ETFs take a different approach by removing the currency part of the equation. Shareholders will receive only the underlying equity return (minus expenses) while being insulated from any currency related gains or losses. The result is “currency-hedged” international ETFs.

The db-X ETFs should outperform its

Deutsche Bank rolled out the latest additions to an ETP lineup that is rapidly approaching 1,300 on Thursday, debuting five ETFs that offer exposure to international equity markets while stripping out the impact of fluctuations in value of the U.S. dollar and non-U.S. currencies. Each of the new products are linked to MSCI indexes, offering exposure to the same basket of companies delivered by many of the most popular existing ETPs. The new hedged equity ETFs include:

• MSCI Japan Currency-Hedged Equity Fund (DBJP)
• MSCI Brazil Currency-Hedged Equity Fund (DBBR)
• MSCI Canada Currency-Hedged Equity Fund (DBCN)
• MSCI EAFE Currency-Hedged Equity Fund (DBEF)
• MSCI Emerging Markets Currency Hedged Equity Fund (DBEM)

Currency Hedge Difference

In addition to offering exposure to the stocks of a particular country or region, most international equity ETFs effectively establish a long position in the local currency and a short position in the U.S. dollar. When the value

Deutsche Bank just came out with the following ETFs:

• db-X MSCI Japan Currency-Hedged Equity Fund (DBJP)
• db-X MSCI Brazil Currency-Hedged Equity Fund (DBBR)
• db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
• db-X MSCI EAFE Currency-Hedged Equity Fund (DBEF)
• db-X MSCI Emerging Markets Currency-Hedged Equity Fund (DBEM)

I am aware of one other similar fund, the WisdomTree International Hedged Equity (HEDJ), which is a broad-based fund that hedges currency. HEDJ just made Ron Rowland's ETF Deathwatch for low volume; Ron reports the assets are at $21 million. There is so little activity in that one that DB thought a whole suite of them, including one that looks like it would be similar to the apparently unpopular (or misunderstood?) HEDJ, might be a good idea.

There might be some application for a pairs trade looking for some sort of absolute return. YTD, a long-EFA/short-HEDJ combo looks like it would have returned

Compared to September, which saw issuers launch more than two dozen new funds and multiple issuers shutter their entire product lines, October was a relatively slow month for the ETF industry. Though the number of new funds launched was down last month, many of the products that did hit the market were innovative, first-to-market funds that accumulated assets rather quickly. The new additions to the ETF lineup covered a number of different asset classes, including precious metals, rare earth metals, Chinese stocks. We also saw another active ETF turn in an impressive debut, indicating that perhaps growth is beginning to accelerate in that corner of the market.

October also set the stage for a flurry of activity in the final two months of the year and first quarter of 2011, as a number of issuers made filings that shed some light on future plans. And in a continuation of a

Deutsche Bank, the financial giant that has partnered with PowerShares on some of the most popular currency and commodity ETF products, has begun laying the groundwork to launch its own line of equity ETFs. In a recent SEC filing, the firm detailed five proposed ETFs:

• DBX MSCI Emerging Markets Currency Hedged Equity Fund (XEMG)
• DBX MSCI EAFE Currency Hedged Equity Fund (XEAF)
• DBX MSCI Brazil Currency Hedged Equity Fund (XBRZ)
• DBX MSCI Canada Currency Hedged Equity Fund (XCAN)
• DBX MSCI Japan Currency Hedged Equity Fund (XJPN)

Each of the proposed funds would utilize forward contracts to hedge out the currency risk that usually accompanies any international equity investment. That feature would essentially isolate the component of returns generated from the performance of the underlying stocks, effectively reducing the overall volatility by stripping out exposure to exchange rates. The uptick in exchange rate volatility and speculation over a second round of