ETFs
Buy These Three ETFs That Will Help You Diversify Internationally
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Pedestrians stand in front of an electronic board displaying stock price figures on the Tokyo Stock Exchange in Tokyo on June 17. KAZUHIRO NOGI/Getty Images
Most Canadians investors have a penchant for “homers.” Their portfolios are heavily overweighted in Canadian companies.
While it’s true that local companies are better known, this preference for the country of origin is not a good way to maximize your returns. On the contrary, it’s a quick path to investment mediocrity.
Most investors are familiar with and practice basic portfolio diversification. It is the process of allocating your money across the three major asset classes: stocks, fixed income, and cash. But it is important to go further and apply geographic diversification as well. This can be easily achieved using exchange-traded funds. (AND F)which offer broad diversification at low cost.
Start with the UNITED STATES. As of July 5, the S&P 500 Index was up 16.72% year-to-date, compared with 5.25% for Toronto’s S&P/TSX Composite Index. True, much of the legwork is being done by mega-tech stocks like Meta Platforms Meta-QMicrosoft MSFT-QAlphabet GOOGL-QNvidia NVDA-Q and Amazon AMZN-QBut the United States has them. We don’t.
Investing in the S&P 500 is easy. Almost every company that offers ETFs has at least one S&P fund. Just shop around.
Here are updates on three other international ETFs that we previously recommended in my Internet Wealth Builder newsletter, all of which are doing well.
CI Japanese Equity Index ETF JAPN-T
Originally recommended on April 15, 2024, at $48.61. Closing Monday at $51.55.
Background: The mandate of this ETF is to track the price and yield performance of the WisdomTree Japan Equity Index CAD, before fees and expenses. The index is comprised of dividend-paying companies incorporated in Japan and listed on the Tokyo Stock Exchange that derive less than 80% of their revenue from Japanese sources. This means that it is biased toward companies with a significant global revenue base.
Performance: After a few weeks of floating, the ETF started to gain ground in the last week of June and is now up 6.9% since its recommendation in April. The decline in the yen’s value against the U.S. dollar, which makes Japanese exports cheaper, has been a key catalyst for the fund’s recent success.
The fund has never lost money in a calendar year and has an average compound annual return since inception of 14.37%.
Key indicators: The fund was launched in August 2018 and is modest in size, with just $42.4 million in assets under management. The management fee is 0.48% and the management expense ratio (MER) is 0.53%.
Wallet: About 27% of the portfolio is invested in consumer goods, 17% in financials and about 15% in industrial goods. The main holdings are Mitsubishi UFJ Financial Group, Toyota Motor and Japan Tobacco.
Distributions: Payments are made quarterly, but the amount can vary widely. The total payment in 2023 was approximately $0.60 per unit.
Perspectives: The ETF has been on a strong run, with a one-year gain of 38.49% as of June 30. It obviously can’t keep up this pace indefinitely, but there still appears to be upside potential from here, especially if the yen remains cheap.
Act now: Buy.
iShares India Index Exchange Traded Fund (ETF) XID-T
Originally recommended on October 262023, at $46.36. Closed Monday at $56.31.
Background: The mandate of this ETF is to generate long-term capital growth by tracking the performance of the Indian Nifty Fifty Index, net of fees.
Performance: The fund is in great shape. As of July 4, the year-to-date return was 14.05%. As of June 30, the fund was up 23.47%. The average annual compound rate of return over 10 years was 10.31%.
Key indicators: The fund was launched in January 2010 and currently manages $127 million in assets. The management expense ratio is 1.03%, which is high for an ETF, but the good results make it worth it. The risk rating is medium to high.
Wallet: The ETF is heavily weighted in financial stocks, which represent nearly 35% of assets under management. Other significant sectors are information technology (12.7%) and energy (12.34%).
The major holdings are HDFC Bank (12.4%), Reliance Industries (9.77%), ICICI Bank (7.87%) and Infosys Ltd. (5.47%).
Distributions: The fund makes semi-annual payments, but they are generally very small. The last payment, made on June 24, was just 2.7 cents per unit.
Perspectives: Relations between Canada and India are at an all-time low, but that has no impact on India’s booming economy. India is now the most populous country in the world and appears poised to overtake China as Asia’s largest economy.
Act now: Buy.
iShares MSCI Europe IMI Index Exchange Traded Fund XEU-T
Originally recommended on April 22, 2019, at $24.43. Closed Monday at $30.18.
Background: This ETF offers exposure to small, mid and large cap stocks from developed European countries.
Performance: As of July 4, the fund was up 11.15% for the year. The one-year gain as of June 30 was 15.25%, and the average annual rate of return since inception was 6.87%.
Key indicators: The fund was launched in April 2014 and manages nearly $310 million in assets. The management expense ratio is 0.28%. The risk rating is medium.
Wallet: The fund has over 1,200 stocks, mainly concentrated in Great Britain (22.2%), France (15.9%), Switzerland (15.8%) and Germany (14.7%). The main positions are Novo Nordisk, ASML Holding (a technology company) and Nestlé.
Distributions: Payments are made semi-annually. The last one, on June 24, was $0.633 per unit.
Perspectives: European stocks are doing better than most Canadians think. Asia should outperform, but Europe should offer lower volatility.
Act now: Buy.
Gordon Pape is the editor and publisher of the Internet newsletters Wealth Builder and Income Investor.
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