ETF Investors May Want to Research Japan, Germany

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When building a diversified investment portfolio, it is important to look beyond U.S. markets and consider the benefits of incorporating foreign equity ETF exposures.

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"It is an ongoing educational process. A lot of investors are overbought U.S., and we are concerned about a pullback," Abby Woodham, ETF Strategist for DWS, told ETF Trends in a call.

Many investors have become reliant on U.S. equity market exposure as the U.S. stocks have dominated performances over the years. However, as the bull market conditions extend, U.S. equities are starting to look pricey relative to foreign markets. Consequently, Deutsche Bank has recently downgraded its position on U.S. equities to "underweight."

"The benefits are already priced in," Woodham said.

Alternatively, Woodham said Deutsche Bank is more optimistic or overweight value and growth excluding the United States, pointing to opportunities in emerging markets, Japan and Germany.

To access Japanese markets, investors may consider something like the Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN), which recently lowered its annual fee to 0.09% from 0.15%, making it one of the least expensive Japan ETFs on the market.

Related: Giant Japan ETF Attracts Billion Dollar Flows

The JPX-Nikkei 400 Index was launched in January 2014 as a means of reinvigorating the Japanese equity market. The JPX-Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit and market capitalization to select high-quality, capital-efficient Japanese companies.

The Xtrackers Germany Equity ETF (Cboe: GRMY) provides access to German large- and mid-cap companies.

The Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (NYSEArca: DEMG) is a smart beta play on the broad emerging markets. DEMG tracks the FTSE Emerging Comprehensive Factor Index, which is designed to provide core exposure to emerging market equities based on five factors – Quality, Value, Momentum, Low Volatility and Size.

Deutsche Bank also has a bullish outlook on China, despite recent rumblings of a trade war.

"The macro theme is pretty positive on China. It is on a solid path his year and the next year," Woodham added.

Investors can gain exposure to Chinese mainland markets through the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), the largest exchange traded fund dedicated to China A-shares. A-shares are the Chinese stocks trading on mainland exchanges in Shanghai and Shenzhen.

For more information on global markets, visit our global ETFs.

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