10 Tantalizing International ETFs to Buy
China poses a risk to those broadening their portfolios beyond the U.S. These international ETFs let you play global markets without exposure to the mainland.
U.S. stocks have put in a solid outperformance against their global counterparts recently, due in part to rising worries over the Delta variant of COVID-19 and regulatory concerns out of China. But there are still plenty of opportunities overseas. And by focusing on international ETFs versus specific stocks, investors are able to spread out their risk across a basket of assets.
Because there is indeed elevated risk internationally at the moment.
One such risk? China. Tightening government regulation across several industries has rattled Chinese equities, which boast the third-largest equity market value by country at 5.4%. Meanwhile, the U.S. Securities and Exchange Commission (SEC) is imposing new disclosure rules on Chinese companies seeking to go public on stock exchanges here at home.
Specifically, SEC Chair Gary Gensler has asked his staff to require more information from offshore issuers associated with China-based operating companies before they will get approval to list their shares in the U.S. "I believe such disclosures are crucial to informed investment decision-making and are at the heart of the SEC's mandate to protect investors in U.S. capital markets," Gensler stated in a July 30 press release.
For those wanting to broaden their investments beyond the U.S., but who might be wary of taking on near-term risks associated with the Chinese mainland, there are plenty of options.
Here are 10 international ETFs that have little to no exposure to China. These seven equity funds and three bond ETFs will allow investors to expand beyond the U.S. border, and gain increased access to developed and emerging markets.
Data is as of Aug. 23. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
Vanguard FTSE Developed Markets ETF
- Assets under management: $103.4 billion
- Expenses: 0.05%, or $5 annually on every $10,000 invested
- Dividend yield: 2.5%
VEA tracks the FTSE Developed All Cap ex US Index, a collection of companies of all sizes from Canada, Europe and the Pacific region. The ETF currently has 4,048 stocks, with 53.9% from Europe, 36.3% from the Pacific, and the remainder from North America and elsewhere.
The median market cap in this Vanguard fund is $36.5 billion, nearly $4 billion higher than the SPDR S&P 500 ETF Trust (SPY) median at $31.4 billion. So, even though it's an all-cap ETF, you're still getting many large companies to lower your overall risk. Large and mega-caps account for roughly 76% of the portfolio, mid-caps another 19.2%, and small caps make up the rest.
Not only is VEA diversified across more than 24 countries – Japan (20.6%), U.K. (13.0%) and Canada (9.1%) are the three largest country weightings – it's also diversified across a large number of stocks. Its top 10 holdings account for just 10.3% of the international ETF's $103 billion in total net assets.
Over the past 10 years, VEA has had an annualized total return of 6.7%.
iShares MSCI EAFE Small-Cap ETF
- Assets under management: $13.2 billion
- Expenses: 0.40%
- Dividend yield: 1.6%
Investors often avoid small-cap stocks when investing outside the U.S because they're unfamiliar with many of the companies held by international funds.
The iShares MSCI EAFE Small-Cap ETF (SCZ, $75.97) gives you a small slice in 2,396 smaller, growing businesses in Europe, Australia, New Zealand and the Far East. In existence since December 2007, it tracks the performance of the MSCI EAFE Small Cap Index. Through July 31, it generated a one-year total return of 38.8%.
The top 10 holdings account for just 2.9% of the ETF's overall holdings, so the exposure to any single stock is minimal. The top three sectors by weight are industrials (23.2%), consumer discretionary (13.3%) and real estate (11.6%). Technology is the fourth largest at 10.4%.
In terms of country exposure, Japan is the largest at 27.1%, followed by the U.K. (17.8%) and Australia at 8.6%.
The average market cap of its holdings is $3.3 billion. The bulk of the portfolio is invested in mid-caps, which account for about 53% of the net assets, while small and micro-caps account for the rest.
iShares International Select Dividend ETF
- Assets under management: $4.4 billion
- Expenses: 0.49%
- Dividend yield: 4.4%
In the current era of low interest rates, dividend stocks have become very popular with investors looking to replace lost opportunities to generate income through bonds and other fixed-income investments.
The issue of low-interest rates isn't limited to the U.S. It's seen globally, which is why the iShares International Select Dividend ETF (IDV, $32.25) is an excellent way for investors to capture income on a worldwide basis.
The international ETF tracks the performance of the Dow Jones EPAC Select Dividend Index. It comprises high dividend-paying companies in Europe, the Pacific, Asia and Canada. To be included in the index, a company must have paid dividends for three consecutive years.
The ETF's top weights include a 22.2% allocation to U.K. companies, as well as 10.2% weight in Canada. But investors who are particularly concerned about Chinese exposure should note that IDV has a 10.3% allocation to Hong Kong-domiciled firms. While Hong Kong traditionally has acted mostly independently from China, recent moves by Beijing interfering with its autonomy and cracking down on various freedoms heighten investing risks there.
From a sector standpoint, financials (30.5%) is the largest holding, followed by utilities (19.6%) and materials (13.0%). As would be expected from a dividend ETF, technology accounts for less than 1% of its net assets.
IDV's top 10 holdings account for nearly 30% of the fund's assets. The ETF is very focused, with just 100 stocks held in the portfolio. U.K.-based miner Rio Tinto (RIO) is the most significant position at 6.8%.
The international ETF has a one-year total return of 32.8% through July 31.
iShares MSCI Canada ETF
- Assets under management: $4.1 billion
- Expenses: 0.51%
- Dividend yield: 1.7%
The iShares MSCI Canada ETF (EWC, $37.22) tracks the performance of the MSCI Canada Custom Capped Index. The index caps the weight of any single stock in the index at 25%. Rebalanced quarterly, the stocks surpassing a weighting of 4.5% can't exceed an aggregate of 22.5%.
The index is intended to represent a broad-based performance of Canadian stocks. EWC currently has 91 holdings with an average market cap of $42.8 billion, which is $4.1 billion less than the index's average market cap.
The top 10 holdings account for 47% of the ETF's total net assets. Financial services is the largest sector-weighting at 37.4%, followed by technology (13.3%) and energy (12.5%). Large and mega-caps account for 88.2% of the international fund's portfolio. Mid-cap stocks account for the rest.
Investors are likely familiar with several of EWC's top holdings investors. They include Shopify (SHOP) in the top spot with an 8.6% weighting, followed by Royal Bank of Canada (RBC) in the second spot at 7.7%.
EWC has a one-year total return of 39.2% through the end of July, and is up 20.7% year-to-date.
iShares MSCI Emerging Markets ex China ETF
- Assets under management: $1.2 billion
- Expenses: 0.25%
- Dividend yield: 1.40%
The iShares MSCI Emerging Markets ex China ETF (EMXC, $60.38) tracks the performance of the MSCI Emerging Markets ex China Index. This free float-adjusted market cap-weighted index captures the performance of large-cap and mid-cap stocks in 25 of the 26 emerging markets, excluding China.
EMXC's average market cap is $35.9 billion, $10.4 billion less than its benchmark. The average stock has a price-to-earnings (P/E) ratio of 12.8 and a price-to-sales ratio of 1.6.
Technology is the largest sector-weighting at 28.9%, followed by financials (20.6%) and basic materials (11.9%). The top 10 holdings account for 25.3% of the international ETF's total net assets.
Taiwan-based chipmaker Taiwan Semiconductor Manufacturing (TSM, 9.6%) and South Korea tech name Samsung Electronics (5.8%) are EMXC's two largest holdings. The ETF has an annual turnover of 18%, turning the entire portfolio every five or six years.
Taiwan, South Korea and India have the largest country weightings at 21.7%, 19.8% and 17.4%, respectively.
Similar to many other international ETFs on this list, the fund has performed well over the past year, returning 34% through July 31.
iShares Latin America 40 ETF
- Assets under management: $1.5 billion
- Expenses: 0.48%
- Dividend yield: 2.2%
The iShares Latin America 40 ETF (ILF, $28.45) is precisely the international ETF you want to own if you want to capture a large segment of a region quickly and efficiently. ILF gives investors access to 40 of Latin America's largest companies in a single fund.
ILF tracks the performance of the S&P Latin America 40, a collection of 40 stocks from five Latin American countries: Brazil (57.7%), Mexico (24.6%), Chile (6.7%), Peru (2.6%) and Colombia (2.2%). The portfolio also has a small U.S. weighting at 5.4%.
The fund's biggest risk is that it follows the sector representation of the index. It does not cap the sector weightings at 25% or some other arbitrary figure. The portfolio turnover is 20% annually and 100% over five years.
The three top sectors of ILF are financials (26.8%), materials (26.6%) and consumer staples (13.3%). Technology accounts for just 5.6%.
As for the companies themselves, familiar names in the top 10 include Walmart's (WMT) Mexican and Central American division Walmart De Mexico, Brazilian miner Vale (VALE) and energy stock Petróleo Brasileiro (PBR). The top 10 holdings account for 55.5% of its $1.5 billion in net assets.
The average market cap for the ETF is $31.7 billion, about $9 billion higher than the index itself. Large and mega-caps account for about 92% of the portfolio.
ILF has an annual total return of 29.7% through the end of July. However, year-to-date, the international ETF is down roughly 3%.
VanEck Vectors Africa Index ETF
- Assets under management: $65.5 million
- Expenses: 0.79%
- Dividend yield: 3.7%
If you want exposure to the least-explored continent by U.S. ETF investors, the VanEck Vectors Africa Index ETF (AFK, $21.22) would be it. AFK is the only pure-play fund available that covers Africa exclusively. Other options among international ETFs include the iShares MSCI South Africa ETF (EZA) or those focusing on the Middle East and Africa.
AFK tracks the performance of the MVIS GDP Africa Index, a collection of companies either incorporated in Africa or those with 50% or more of their revenues and/or assets in Africa.
At present, AFK has 73 holdings, with 69.1% invested in companies with market caps of $5 billion or more. The remainder of the assets is invested in mid-cap stocks with market caps of $1 billion to $5 billion. AFK's weighted average market cap is $16.4 billion.
The fund's top 10 holdings account for 48.8% of its assets. If you're not okay with funds that turn their stocks more frequently, you might not like its 37% turnover rate. That's the equivalent of buying and selling an entire portfolio every 2.7 years. It also explains the relatively high expense ratio of 0.79%.
The fund's top three countries by weight are South Africa (32.2%), Nigeria (13.70%) and Morocco (11.8%). The top three sectors are financials (31.4%), materials (27.9%) and communication services (17.5%).
Through July 31, AFK's total one-year return was 28.9%.
iShares International Treasury Bond ETF
- Assets under management: $1.3 billion
- Expenses: 0.35%
- SEC yield: -0.02%*
The iShares International Treasury Bond ETF (IGOV, $52.84) tracks the performance of the FTSE World Government Bond Index – Developed Markets Capped Select Index.
Although the index's name is a mouthful, it just means that it invests in non-U.S. government bonds issued by developed countries such as Japan (15.9% weighting), France (8.1%) and Italy (7.6%). Thus, like most international ETFs, it has no exposure to the U.S.
The fund owns 751 Treasury bonds with a weighted average coupon of 1.8%, a weighted average maturity of 10.79 years and an effective duration of 9.24 years.
More than 92% of the Treasury bonds held in the portfolio have an A, AA or AAA credit quality. That's considerably higher than its peers in the World Bond category at 58%. Additionally, more than 15% of the bonds have average maturities of 20 or more years.
The top 10 holdings account for roughly 7% of the fund's $1.3 billion in net assets. IGOV's turnover rate is 41% or once every 2.4 years.
In terms of performance, over the past decade, IGOV has generated positive total returns in six of 10 years for a 0.78% annualized total return.
IGOV is meant for preserving capital rather than growing it.
*SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.
First Trust Emerging Markets Local Currency Bond ETF
- Assets under management: $278.4 million
- Expenses: 0.85%
- SEC yield: 5.2%
The only actively managed fund on this list of international ETFs is the First Trust Emerging Markets Local Currency Bond ETF (FEMB, $33.62). FEMB seeks to invest in local currency bonds issued by emerging markets governments and related entities, including central banks, development agencies or sovereign entities.
According to First Trust Global Portfolios Limited, the ETF's sub-advisor, emerging markets are any country other than a defined list of 25 developed markets, including the U.S. and Canada.
The portfolio managers can invest in bonds of any credit quality, including junk bonds. Its goal is to invest no more than 20% of the fund's net assets in any single country, although that's not a set weighting.
FEMB was launched in November 2014 at $50 per share. Its annualized total return over the past five years, through July 31, is 1.2%.
The ETF's top three countries by weighting are Brazil (14.1%), South Africa (12.0%) and Indonesia (9.5%). The weighted average maturity is 6.95 years, while the weighted average coupon is 6.2%.
FEMB holds a total of 53 local currency bonds. The top 10 holdings account for 38.9% of the total net assets.
Invesco International Corporate Bond ETF
- Assets under management: $116.4 million
- Expenses: 0.50%
- Dividend yield: 0.4%
The Invesco International Corporate Bond ETF (PICB, $29.15) tracks the performance of the S&P International Corporate Bond Index. The index is composed of investment-grade corporate bonds denominated in the currency of any of the G-10 countries, including the U.S. dollar, Canadian dollar, British pound and euro.
The international ETF currently has 583 holdings, with the top 10 accounting for just 5.8% of the portfolio. The top three sectors by weight are financials (45.6%), utilities (10.3%) and communication services (8.9%).
In terms of country allocation, 21.7% of the ETF is invested in the corporate bonds of companies based in the U.K. The second-highest weighting is France at 18.5% and Canada at 16.1%.
Approximately 49% of the bonds are rated BBB, 41% are A-rated, AA accounts for 4% and AAA 1%. The percentage of bonds not rated is 5%.
The fund has a weighted average coupon of 2.58%, a weighted average maturity of 8.75 years and an effective duration of 7.07 years.
Since its inception in June 2010, it has had a 3.87% annualized total return through the end of July, 27 basis points (a basis point is one one-hundredth of a percentage point) higher than the Bloomberg Barclays Pan-European Aggregate Index.