Investors Think These Are the Best International ETFs. Are They Right?
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Exchange traded funds have taken the investing world by storm, and investors have plowed trillions of dollars into the ETF universe. In particular, ETFs have opened up many asset classes in which it used to be difficult for investors to get exposure, and the international investing realm has become much more accessible as a result of large international ETFs. When it comes to the best international ETFs, investors have put their money where their mouths are. But even though the ETFs listed below have attracted the most assets, some wonder whether they're truly the best bet. Let's take a closer look at these international ETFs to see if they deserve their popularity.
Data source: Fund companies.
How vanilla index funds rule the international ETF universe
When you look at the top five international ETFs by assets under management, it quickly becomes evident that there are two main focus areas in the international investing realm. Funds like the iShares MSCI EAFE and Vanguard Developed Markets ETFs concentrate on what are known as developed market countries, which have been at the forefront of the international investing realm for a long time. Stocks in countries like Japan, Germany, and the U.K. make up substantial portions of these funds, with other well-known countries with large economies taking up most of the rest of the top slots within these ETFs' portfolios.
By contrast, emerging market funds, like the two iShares offerings and the Vanguard Emerging Markets ETF, invest in countries that aren't yet considered to have reached their full economic potential. For a long time, the so-called BRIC countries of Brazil, Russia, India, and China were the main areas in which such funds concentrated, and they still make up substantial portions of these ETFs' holdings. Yet gradually, the emerging market universe has expanded to cover other countries as well.
What all of these funds have in common is that they track broad-based indexes. The MSCI and FTSE indexing systems are slightly different, but the holdings of these ETFs closely mimic those of their counterparts tracking the same subset of international stocks.
Interestingly, though, the iShares and Vanguard offerings have different costs. In particular, the two biggest iShares ETFs on the list have expense ratios that are markedly higher than Vanguard's. The iShares funds have more trading liquidity, and they've therefore become favorites of institutional investors who like to be able to buy and sell frequently. For longer-term investors, however, the lower expense ratio produces better returns. That's one reason why iShares created its Core set of ETFs, which feature somewhat lower expense ratios but without the same amount of trading liquidity that made it a leader in the industry.
Looking at other ETFs
The top five international ETFs definitely give you exposure to international stocks, and the lower-cost choices on the list make sense as a core international ETF holding for most investors. Yet for those with somewhat more specific goals, other sets of ETFs are worth a look. Among them are:
- Country-specific ETFs that track companies from a single nation.
- Regional ETFs that concentrate on a particular part of the world, such as Europe, Asia-Pacific, and Latin America.
- International dividend ETFs that look for the international stocks that produce ample dividend income.
- Sector-specific international ETFs that focus on a given industry.
- Style-specific ETFs that divide up international stocks by growth or value, as well as by the size of the companies in which they invest.
If you only look at the broad-based index ETFs that attract the most assets, you'll miss out on some very interesting investing opportunities in the international stock space. In the end, what makes the best international ETF for your portfolio depends a lot on what your particular goals and aspirations are for adding international stocks to your overall investing strategy.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.