How to Invest in Foreign Markets with ETFs
Ways to use ETFs for your international investment strategy.
Investors are always looking for ways to increase their portfolio exposure and capitalize on profitable opportunities. International investing is no exception. With the popularity of emerging markets, the need to hedge interest rate risk, and global issues like the energy crisis, there is always a reason to include foreign investments as part of an investment strategy.
Enter foreign ETFs, efficient and beneficial assets for your portfolio to gain instant access and invest in foreign markets. So with that in mind, here are 6 ways to use international ETFs in your portfolio.
Specific Foreign Market ETFs
If you’re looking to target a specific country in your investing strategy, a foreign market ETF might be your best fit. Market ETFs track the overall performance of a country’s financial situation by tracking a particular index relative to that country. The index usually consists of a basket of stocks important to the economic climate. Thereby an overall change in the index (or the companies included) is indicative of the country’s financial situation.
For example, EWG – the iShares MSCI Germany Index ETF, tracks the MSCI Germany Index. The index contains companies in German sectors such as software, utilities, financial services, and others. There will be moves in each sector on different trading days, but an overall move in the index may be an indication that the economy as a whole has a certain sentiment.
Broad Foreign Market ETFs
While some market ETFs focus on a specific country or region, there are other ETFs that are more collective as their location targets. For example, a BRIC investment will include securities deriving from Brazil, Russia, India or China. So if you are looking to invest in China, a BRIC ETF like BKF - iShares MSCI BRIC Index ETF, may be one way to do so.
There are other broad market ETFs besides BRIC products as well. There are Asia ETFs, Europe ETF, and even North America and Latin ETFs.
Emerging Market ETFs
Similar to foreign market ETFs, there are broad and specific emerging market ETFs as well. As opposed to developed foreign markets, emerging markets are regions whose economies are on the rise. So if an investor thinks there is potential profit for a specific country or a general region, then an emerging market ETF might be a sound investment.
For example, there are specific country emerging market ETFs like GXG – the Global X / InterBolsa FTSE Colombia 20 ETF and then there are broad emerging market ETFs that track this sector as a whole like EEG, the Emerging Global Shares Dow Jones Emerging Markets Titans Composite ETF
International Bond ETFs
Another way to invest in foreign markets is with international bond ETFs. Not only do bond ETFs increase your exposure to foreign regions, but they also create a revenue stream for your portfolio.
Another nice benefit of international bond ETFs is that they can help hedge your foreign interest rate risk. If you need upside or downside protection for your portfolio’s international interest rates, you may want to look into foreign bond ETFs. For a full list, look no further than our List of International Bond ETFs.
Foreign Currency ETFs
As with other foreign ETFs, currency ETFs can track a specific country or a collection of currencies. Also, they are a nice way to gain exposure to a country’s economic climate, since the value of a currency is indicative of its current financial state. And like international bond ETFs, currency ETFs allow you to hedge foreign interest rate risk.
Most investors think that commodities are a general or domestic investment, but that’s not the case. Like foreign ETFs, a commodity ETF can also be used to gain international exposure or hedge foreign risk in a portfolio.
For example, if you have investments in a country where the chief outsource is coal, using a coal ETF to offset some risk for that country might be a strategy to adopt. Or with the looming energy crisis, a solar energy ETF might be an investment that pays dividends on a global scale.
Utilizing a commodity ETF as a foreign investment is an advanced strategy, but with the proper application, can be very effective for investors and traders alike.
So, if you are looking to increase your exposure to foreign markets, there are many types of foreign ETFs for your investing arsenal. From foreign bond to commodity funds, international ETFs can work for you.