4 Best International ETFs To Effectively Diversify Your Portfolio

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Includes: ASEA, FEEU, VPL, VWO
by: Roy Wang

Summary

In a volatile market, ETFs are a great way to diversify your portfolio.

Fast-growing emerging economies and a recovering Europe is getting more traction among ETF investors.

Below ETFs consist of large-cap firms with solid performance in their respective markets.

An exchange-traded fund ("ETF") is one of the easiest and most effective ways to increase international equity exposure without taking on excessive individual risks associated with companies operating overseas. Below are four of the most effective international ETFs this year that have a good upside potential and can also provide diversification from a U.S securities portfolio.

1. Vanguard FTSE Emerging Markets ETF (VWO)

Tracking Index: FTSE Emerging Markets All Cap China-A Inclusion Index

Fund Approach: semi-active

VWO portfolio diversifies across emerging markets including China (28.7%), Taiwan (15.9%), India (12.1%), South Africa (7.9%), and Brazil (7.8%). The portfolio is a great way to add exposure to the BRICS economies without investing in one specific company in the countries, which might be hard to perform due diligence on.

Vanguard FTSE Emerging Markets ETF’s 0.14% expense ratio is lower than 90% of funds with similar holdings, while its $75.8 billion in total assets makes it one of the largest and most liquid ETFs for the region.

Top 10 Holdings
(17.1% of total net assets) as of 05/31/2017

1

Tencent Holdings Ltd. (OTCPK:TCEHY)

4.0%

2

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM)

3.6%

3

Naspers Ltd. (OTCPK:NPSNY)

1.9%

4

China Construction Bank Corp. (OTCPK:CICHY)

1.6%

5

China Mobile Ltd. (OTCPK:CHLKF)

1.3%

6

Hon Hai Precision Industry Co. Ltd. (OTCPK:HNHAY)

1.1%

7

Industrial & Commercial Bank of China Ltd. (OTCPK:IDCBY)

1.1%

8

Bank of China Ltd. (OTCPK:BACHY)

0.9%

9

Housing Development Finance Corp. Ltd. (OTC:HSDVY)

0.8%

10

Itau Unibanco Holding SA (NYSE:ITUB)

0.8%

(VWO price since inception)

2. Barclays ETN + FI Enhanced Europe 50 ETN (FEEU)

Tracking Index: STOXX Europe 50 USD Total Return Index

Fund Approach: passively managed

ETN Structure: Senior, Unsecured, Unsubordinated Debt, leveraged 2x on Index

FEEU is an exchange-traded note (ETN) issued in the U.S. The ETN provides investors with a cash payment at the scheduled maturity or optional redemption based on a leveraged participation in the underlying tracked index. Its holdings include 50 blue-chip companies from largest economies in Europe, with country exposure across France (34.2%), Germany (30.8%), Spain (13.2%), and others. Sector exposure spreads across Financials (21.8%), Consumer Cyclical & Non-Cyclical (14.8% & 14.3%, respectively), Industrials (10.5%), and others. The ETN has a total net asset of $490.17 million.

However, investors with a strategy focusing on dividend distributions should note that FEEU currently do not distribute cash dividends, and capital gains from the ETN only comes from rise in the securities price.

Similar Funds to consider:

  • Credit Suisse FI Enhanced Europe 50 ETN (FIEU)
  • UBS AG FI Enhanced Europe 50 (FIEE)
  • Direxion Daily FTSE Europe Bull 3x Shares (EURL)

Top 10 Holdings

(17.1% of total net assets) as of June 16, 2017

1

Anheuser Busch Inbev NV (NYSE:BUD)

5.44%

2

Total SA (NYSE:TOT)

4.72%

3

Sanofi SA (NYSE:SNY)

4.34%

4

Unilever NV (NYSE:UN)

3.85%

5

Banco Santander SA (NYSE:SAN)

3.65%

6

Siemens AG (OTCPK:SIEGY)

3.38%

7

Bayer AG (OTCPK:BAMXF)

3.37%

8

Volkswagen AG (OTCPK:VLKAY)

3.29%

9

SAP SE (NYSE:SAP)

2.92%

10

BASF SE (OTCQX:BASFY)

2.89%

(FEEU price since inception)

3. Vanguard FTSE Pacific ETF (VPL)

Tracking Index: FTSE Developed Asia Pacific All Cap Index

Fund Approach: passively managed, full-replication

Vanguard FTSE Pacific ETF diversifies across Asia Pacific region and focuses on developed markets such as Japan (biggest index component), Australia, Hong Kong, New Zealand, and Singapore.

VPL is a good way to increase exposure to large cap and well-performing companies within mostly mature capital markets. The fund's 0.1% expense ratio is lower than 92% of funds with similar holdings, and has a total net asset of $6.7 billion.

Top 10 Holdings
(14.7% of total net assets) as of 05/31/2017

1

Samsung Electronics Co. Ltd. (OTC:SSNLF)

3.5%

2

Toyota Motor Corp. (NYSE:TM)

2.2%

3

Commonwealth Bank of Australia (OTCPK:CMWAY)

1.5%

4

AIA Group Ltd. (OTCPK:AAGIY)

1.3%

5

Mitsubishi UFJ Financial Group Inc. (OTCPK:MBFJF)

1.3%

6

Westpac Banking Corp. (NYSE:WBK)

1.1%

7

SoftBank Group Corp. (OTCPK:SFTBY)

1.1%

8

Australia & New Zealand Banking Group Ltd. (OTCPK:ANZBY)

0.9%

9

National Australia Bank Ltd. (OTCPK:NABZY)

0.9%

10

BHP Billiton (NYSE:BBL)

0.9%

(10-year VPL price chart)

4. Global X FTSE Southeast Asia ETF (ASEA)

Tracking Index: FTSE/ASEAN 40 Index

Fund Approach: passively managed

The Global X FTSE Southeast Asia ETF provides investors with broad exposure to the vibrant and fast-growing Southeast Asian economies, comprised of 40 companies from Singapore, Malaysia, Indonesia, Thailand and the Philippines, etc, with a focus on the Financials sector (45.10%), followed by Telecommunications Services (16.05%), Industrials (7.86%) , Consumer Staples (6.51%), and other sectors. ASEA has a cost ratio of 0.65%, and a total net asset of $12.06 million. The Index has had a positive performance so far this year, with a 19.74% upside year-to-date.

Top 10 Holdings
(49.7% of total net assets) as of 06/19/2017

1

DBS Group Holdings Ltd (OTC:DBSAY)

7.02%

2

Oversea Chinese Banking Corporation Limited (OTCPK:OVCHY)

6.52%

3

Singapore Telecommunications Limited (OTCPK:SGAPY)

5.64%

4

United Overseas Bank Ltd. (Singapore) (OTCPK:UOVEY)

5.37%

5

PT Telekomunikasi Indonesia, Tbk Class B (NYSE:TLK)

4.62%

6

PT Bank Central Asia Tbk (OTCPK:PBCRY)

4.58%

7

PTT Public Co., Ltd. (OTCPK:PETFF)

4.48%

8

Public Bank Bhd (OTCPK:PBLOF)

4.01%

9

PT Astra International Tbk (OTCPK:PTAIY)

3.79%

10

Siam Cement Public Co. Ltd. (OTCPK:SCVPY)

3.66%

(ASEA price since inception)

Risks and Other Considerations

International investors looking to build exposure abroad should be aware that investing in certain regions involves several risks, ranging from individual country’s economic growth, to potential of political/social unrest in the region. Specifically, the political factors such as recent and upcoming elections, ECB and individual countries’ rate policies, and the underdeveloped infrastructure and non-transparent legal & regulatory environment of certain emerging markets all pose uncertainty to the holdings in the above-stated Funds. Investors should carefully weigh these risks before committing any capital in order to mitigate overall portfolio risk while achieving an effective diversification effect.

On the other hand, those who are looking for more specific exposures than broad market risks offered by the ETFs listed above may also want to consider U.S traded American Depository Receipts ("ADRs"), which are designed to track the movement of foreign equities trading on foreign stock exchanges.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VWO, VPL over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.