The Wisdom of Foreign Sector Etfs

Chartwell Law Firm - The Wisdom of Foreign Sector Etfs

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Investing in overseas sectors has been a hit and miss proposition until Wisdom Tree recently rolled out its ten foreign sector Etfs. How do these correlate with other options such as global sector and country definite Etfs?

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Etfs are a convenient, flexible, transparent, low-cost and tax-efficient way for investors to gain some international exposure but the choices can be overwhelming. They contain country-specific, Adr, global, global sector, regional, foreign currency, and the new international sector Etfs.

It is necessary that investors look "under the hood" and see where their money is in effect going. For example, if you spend in the beloved Msci Europe Asia, Australia and Far East Etf (Efa), about half of your money is going to just two countries: Japan and the Uk while exposure to great countries like Ireland and Singapore is insignificant.

The Msci Emerging shop Etf (Eem) has a much more balanced weighting with 17% going to South Korea, 11% to Taiwan, 10% to both China and Russia, 9% to South Africa, 7% to Mexico and 5% to India. This is the most even distribution of the regional Etfs and has the added bonus of low fees.

The country-specific Etfs by the iShare family are an keen play on foreign markets but keep in mind that since they are shop cap weighted, just a few fellowships in the basket can dominate the other fellowships in the Etf. Just three fellowships catalogue for 49% of the Austria (Ewo) Etf and Samsung and Ericsson catalogue for 22% of the South Korea (Ewy) and Sweden (Ewd) Etfs, respectively.

Country Etfs are also a creative way to target definite international sectors. Canada (Ewc) has 32% exposure to the vigor sector followed by Brazil (Ewz) with 24%. Belgium (Ewk) offers a surprising 61% exposure to the financial sector followed by Hong Kong (Ewh) with 52%. Taiwan (Ewt) has 57% of its weighting in technology and Switzerland (Ewl) has 32% in healthcare.

Now we come to the global sector Etfs and the new kid on the block, the Wisdom Tree international sector Etfs. Let's look at the financial sector to correlate and variation them.

The iShares Global Financial Sector (Ixg) has an exposure of 41% to American financial firms with Japan and the Uk representing an supplementary 20%. Its top five holdings are Citigroup (3.8%), Bank of America (3.8%), Hsbc (3.2%), Aig (2.6%) and Jp Morgan Chase (2.5%). If you want a pure play of international sectors, the Wisdom Tree option is the way to go but blending in American firms with the global sector Etfs can lower volatility make many investors more comfortable with venturing into international markets.

The Wisdom Tree Etfs are not weighted by shop value but rather on the company's description of expanding dividends. This plus the omission of any American fellowships gives investors a very distinct pattern of exposure.

The Wisdom Tree International Financial Etf (Drf) top fellowships are Hsbc (7.3%), Lloyds (3.3%), Royal Bank of Scotland (3.2%) and Barclays (3.0%) and Ing (2.7%). It might surprise you that Barclays is now the largest money owner in the world and Hsbc has recently passed Citigroup to become the largest bank in the world in terms of assets. Wisdom Tree offers other international sector Etf outside the basic materials, communications, buyer cyclical, energy, condition care, industrials technology and utilities sectors.

By now you might be reasoning that this is getting a bit complicated. I have an easy solution. Look at the S&P Global 100 (Ioo) Etf which invests in the 100 largest fellowships in the world. About half are U.S. fellowships and the rest spread around the world. Unfortunately, it is shop cap weighted but it is still the easiest way to put some punch in your portfolio. Everybody is talking about the resurgence of the Dow but the S&P Global 100 Etf has beaten it by 40% so far this year. A itsybitsy international can go a long way.

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