International Stock Market Etfs
international Stock Market etfs
28 July 2009 NYSE Opening Bell ETF Securities
International Investing: Going Global
China has been in the news quite frequently the last few months. Whether it’s been the stories of large offers to purchase American-owned companies, or their gradual rise in status to economic super-power, the Communist nation is clearly making waves in the world markets.
China is making aggressive moves to one day rival the U.S. in economic dominance on a global scale. According to U.S. News and World Report, in the year 2020, China’s economy will pass Japan’s to become the second largest in the world. Second, of course, only to the U.S. China’s major industries include oil and petroleum, as well as telecommunications. And the country is home to an estimated 2 million people who have a net worth of a least $40 million. That number is only expected to grow, and with it, so will opportunities for investment.
Diversification has long been a basic rule of thumb for investment. But never before has there been such a wide range of opportunities for diversification outside of the U.S. and those opportunities only seem to increase daily. China’s experiment with capitalism means more and more opportunity for U.S. investors who wish to tap into an ever-growing and potentially lucrative worldwide market.
Many experts differ in how much global investment to keep in your portfolio. Some warn to stay away completely. The world markets have not always done so well, and are often volatile, which is one more reason to keep a sensible balance within your portfolio between foreign and domestic holdings. But others recommend investing up to 20% or more of your portfolio in the worldwide markets to increase diversification. Diversification seeks to reduce risk while maximizing returns by investing in dissimilar asset classes. It should be noted that this strategy does not prevent losses from occurring in a down market.
A great deal of the emerging markets success, experts believe, can be attributed to restructuring by countries around the world. Many believe that Japan is expected to start moving from a manufacturing economy to a service economy soon. Experts believe that the transition will bring numerous potential opportunities for success, both in Japan and across the globe
So how do you take advantage of such a global economy? While something can be said for buying and supporting the U.S., China and many other developing countries, offer a distinct opportunity for global investment in an emerging market. Opportunities abound for investment in global funds, indexes, or bonds, and other global investments which target specific countries or a group of countries. All of these added markets and countries in your portfolio can lead to greater diversification in an attempt to minimize risk.
As the world moves forward, economies are gradually shifting and always adapting. The ones that are doing it quickly and efficiently are seeing a great deal of success. Investing in global markets is not without risk. The volatility can be extreme at times. But that’s why diversification has become such a popular Investment Strategy. With the proper balancing and a specific investment strategy formulated with a financial professional, you can invest in countries across the world and potentially take advantage of world growth. And add a bit of international flavor to your portfolio in the process.
International Stocks entail special risks associated with international investing, including currency exchange fluctuation, government regulations, and the potential for political and economic instability.
About the Author
Robert Valentine is a well-known expert in the matters concerning investors. His popular
Retirement Planning
articles have been published by several publications throughout the United States. Please visit his website,
http://www.themoneyalert.com
to view his column.
Why is international diversification so important?
In reviewing several international etfs, VGK, VPL, ILF, MES etc., all of which followed the S&P down during the meltdown, why is exposure to international stocks considered so important? Wouldn’t it be better to just buy a few stocks from around the world like PBR, AMX, NSRGY, IBN, CHL or TM and hedge the portfolio with a market short etf? I’m not saying buy them all or anything like that in fact I already own a few, it just bugs me that when all heck broke loose, everything fell, even the international stocks so can someone please tell me what I am missing about diversification? Paul?
Remember that old economic adage;
“When the US gets the sniffles, the rest of the world gets a cold.”
It seems to me that over the last 30 months or so, the US got pneumonia, and the rest of the world got …..well….pneumonia too!
I’m not a “trader”. I don’t claim to be one, and those that are good at it have my respect, but they are few and far between. I have the license that allows me to act as a broker and trade for others, but I’m much better at structuring a buy and hold investment portfolio for a given risk tolerance, as opposed to trying to be a Stock Picker. One thing I’ve learned about ETF’s and other new investment vehicles is that the introduction of many of them is demand driven. If there is an interest in a specific area or procedure or market trick or developing technology, some firm will issue a new ETF or UIT or CEF or Mutual Fund to serve that demand. Too many of these new issue securities are devised by guys with PHD’s in mathematics who wouldn’t know a weather related downturn in a commodity (as a random example) from a turned down bed.
Much of modern portfolio theory got thrown out the window during 2008 and early 2009 because it seemed as if there was no safe asset class at all. But that was a once in a lifetime event. If every recession and market correction was as severe as what we all just went through (and are still going through, to be sure) it wouldn’t really matter where you put your money.
But luckily, most recessions and market corrections aren’t like that.
I still think MPT ( http://en.wikipedia.org/wiki/Modern_portfolio_theory ) and diversification has merit and I am a firm believer in trying to mitigate risk whenever possible. But the world is a very different place from the days when that theory was devised. Hell, when that theory was first formulated, the primary transport for the overwhelming majority of Chinese was the bicycle. I think you’re aware of how much things have changed.
I don’t really have an answer for you, Douglas. I don’t think you are missing anything, to be honest.
Want to know what the absolute perfect play would have been from Oct. of ‘07 when the Dow peaked at over 14,000 to the end of 2008? It’s easy to see in retrospect, but damned few people did this, I’ll bet and it is the antithesis to being diversified;
If you had sold every single equity position you had in early October of 2007 and bought new or recent issue, 30 year Treasury bonds the same day, you could have bought those bonds for between 90 and 95% of par. Those bonds were paying a 4.5% coupon at the time. If you had held those bonds for just 14 months – from Oct. 07 to December of 08 and sold them, you would have seen the bonds increase in value from $950 a piece to around $1400 a piece AND been paid $45.00 per bond in interest payments. In December of 2008 the yield on the 30 year fell all the way to 3% AND BELOW! It bottomed out at 2.53% on December 18, 2008. That was the perfect play. No tricks, no options, no shorting, just simply exchanging equities for long treasuries. And you would have seen a +45% return on your money for the year while every long equity portfolio on the planet was DOWN about the same.
Almost every conservative portfolio model I have dealt with, and by that I mean ones with a Beta of less than 1, had the international sleeve as less than 25%, usually WAY less. The more aggressive the mix, the higher the international percentage. That has or will likely change over time as the BRIC’s of the world get past the stage of being “emerging” and become more established. There are two billion people between India and China that now have access to information on an unprecedented scale and they will all want what people in the west take for granted; Cars, Air conditioning, refrigerators and other appliances, modern sanitation systems, highways, etc. etc. etc. So counting them out in the coming decades would be a mistake.
All is not lost for the USA though. In spite of many opinions I have read on the internet regarding the failures of the American system, in the past, many people and countries have underestimated the ingenuity and capability of the American people to bounce back.
They will do so again at their own peril.
There is another old adage;
Buy on panic, Sell on euphoria,
I’ll add one more thing. Where is the absolute last place you would consider investing? What geographical area or asset class would you currently consider as something to be avoided at all costs?
THAT is the one to start taking a hard look at now.
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