Cover The World With Global ETFs

By Ron Rowland on July 16, 2009
Once upon a time, Americans who wanted to invest in foreign stock markets faced all kinds of hurdles. For example, brokers often weren’t able to process orders on non-U.S. exchanges. And the few good global mutual funds that existed tended to have very high loads and fees. Plus you could expect to be harshly punished if you tried to make a short-term trade. We’re in a new age now … thanks to the ETF revolution, you can spread your portfolio over just about the whole world - or only a few parts of it. And you get to pick which parts! Today I want to run through the different categories of global ETFs. As you’ll see, with more than 200 of them now available, you can be as broad - or as specific - as you want.

Cover the World With Global ETFs …
Looking for simplicity? Then you may want to consider a global ETF that includes stocks from around the world, including the U.S. For instance, take a look at VT (VT: 36.39 0.00 0.00%) - the Vanguard Total World Stock ETF. Just like the name suggests, it tracks an index of stocks from almost every exchange on the globe.
With VT you get the widest possible stock exposure with the ease of just one trade. It’s a great option for those who like one-stop shopping.A slightly narrower group of ETFs tracks indexes of non-U.S. stocks only. Note the distinction here: “Global” or “world” ETFs include the U.S. and other countries. “Foreign” and “international” include various groupings of other world markets, but exclude U.S. markets.

A good example of a foreign ETF is the iShares MSCI EAFE, ticker EFA (EFA: 46.99 0.00 0.00%). The acronym EAFE stands for Europe, Australasia, and the Far East - the entire developed world’s markets outside the U.S.A sister fund, the iShares MSCI Emerging Markets (EEM: 33.23 0.00 0.00%), tracks emerging markets. What, you might ask, is the difference between a “developed” market and an “emerging” market? Good question. And the answer is somewhat subjective …

Index providers, like MSCI, draw the line based on their ongoing analysis of each country. This means that countries can move from one category to the next. For instance, Israel was recently promoted to “developed” status by MSCI. South Korea and Taiwan are still considered emerging markets but will probably be reclassified soon. When this happens, the holdings in EFA and EEM are automatically changed - you don’t have to do anything.And there’s even a category labeled frontier markets. These are the very small markets that don’t qualify for emerging market status. The Claymore/BNY Mellon Frontier Markets ETF (FRN: 15.99 0.00 0.00%) is one of the ETFs that attempts to capture these still-tiny niches. Its top holdings include stocks of companies from countries such as Egypt, Czechoslovakia, and Qatar.Since you’re reading Money and Markets, I’ll bet you like to follow the markets more actively. Therefore, you might be interested in zeroing in on certain parts of the world. If so, consider looking at …

Regional and Country ETFs …
Maybe you think (as I do) that much of the world’s growth during the next few years will be in Asia. A broad fund then, like VT that includes the U.S. and Europe, wouldn’t exactly meet your requirements. Good news: There are about 25 regional ETFs that specialize in specific areas of the globe!So if you like the Asia Pacific region, you might consider the Vanguard MSCI Pacific (VPL: 46.15 0.00 0.00%). You’ll get exposure to stocks from Japan, Australia, Hong Kong, Singapore and New Zealand. Since VPL’s index is market-weighted, Japan is its biggest holding.

That’s not all …
You can pick from more than 45 single-country ETFs that trade in the U.S. just like regular ETFs and stocks. These ETFs let you easily follow market momentum as it travels around the world.Maybe you want to target Japan … take a look at the SPDR Russell/Nomura Prime Japan (JPP: 35.39 0.00 0.00%), where you’ll find a portfolio full of Japanese blue chips. It’s just one of ten ETFs that focus exclusively on Japan.
Other examples of single-country ETFs, moving from East to West, include …
* PowerShares Golden Dragon Halter USX China (PGJ: 21.22 0.00 0.00%)
* iShares MSCI Malaysia (EWM: 9.20 0.00 0.00%)
* iPath MSCI India ETN (INP: 49.10 0.00 0.00%)
* Market Vectors Russia (RSX: 20.05 0.00 0.00%)
* iShares MSCI South Africa (EZA: 48.10 0.00 0.00%)
* iShares MSCI Brazil (EWZ: 53.711 0.00 0.00%)
International Sectors …
You can also get sector-focused global and international ETFs. This is one of the largest groups of international funds with more than 65 ETFs.One example is the SPDR S&P International Energy (IPW: 22.593 0.00 0.00%). Instead of being dominated by the American multinational oil giants like many energy sector funds, IPW gives you access to non-U.S. companies like BP Group, Royal Dutch Shell, Encana, and Suncor.

Specialty International Funds …
When most people think of ETFs, they think of stock funds. However, there are now more and more bond ETFs being introduced. In fact, there are already seven international bond ETFs, such as the SPDR Barclays International Treasury Bond ETF (BWX: 55.21 0.00 0.00%). Currency ETFs provide yet another way to invest outside the borders of the U.S. There are more than 30 of them, and I covered this topic in my June 18 column.Next, let’s take a quick look at one more category of ETFs: Those that follow certain investment themes combined with a geographic specialty. A good example is the Claymore/AlphaShares China Small Cap (HAO: 21.95 0.00 0.00%). In addition to investing exclusively in China, HAO concentrates even more and gives you a portfolio of fast-growing Chinese small-caps.

Last but not least, we’re starting to see more leveraged and inverse international ETFs. Look for the selection of these to grow, but use them with caution. See my June 25 column to learn more.As you can tell, the world of ETFs is a lot bigger than you might think. And you can use it to expand your horizons and scour the globe for profits!To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive.