Exchange-traded Funds (ETFs) are an increasingly popular investment vehicle. Because it is so difficult for retail investors to pick individual stocks that beat the performance of a benchmark index such as the S&P 500, many people are choosing instead to invest in ETFs that track the market such as the SPDR S&P 500 ETF (NYSEARCA:SPY) that tracks the S&P 500 stock index, or the Invesco QQQ (NASDAQ:QQQ) that tracks the performance of the Nasdaq. ETFs can also track a number of stocks in a particular sector such as technology.
In 2019, assets held in U.S.-based ETFs reached a record $4 trillion. More money is now invested in ETFs than hedge funds. ETFs are known as a passive investment as they are not actively managed by a fund manager. Shares of ETFs are traded on exchanges just like a stock and rise or fall along with the market or sector they are tracking. ETFs are also cheaper to own than mutual funds that are actively managed and charge high management expense fees. The combination of low fees and market matching performance have made ETFs very popular with investors.
And while many of the top performing ETFs are focused on U.S. markets and economic sectors, there are a number of international ETFs that offer solid returns and can provide diversification to a portfolio. Here we look at seven of the best international ETFs for investors to buy for diversification.
- Invesco China Technology ETF (NYSEARCA:CQQQ)
- Vanguard FTSE Europe ETF (NYSEARCA:VGK)
- Schwab Emerging Markets Equity ETF (NYSEARCA:SCHE)
- ProShares Ultra MSCI Brazil Capped (NYSEARCA:UBR)
- Global X FTSE Nordic Region ETF (NYSEARCA:GXF)
Best International ETFs: Invesco China Technology ETF (CQQQ)
Expense Ratio: 0.7%, or $70 annually per $10,000 investment
There’s a lot of growth potential and risk with Chinese technology companies. On one hand, China is the largest and fastest growing market in the world. On the other hand, Chinese companies have a track record of accounting irregularities, fraud and embezzlement. Given this quandary, one of the best ways to invest in the potential growth of China while mitigating the risk is to invest in the country and its top tech companies through an ETF. And the Invesco China Technology ETF, known as CQQQ, is one of the very best.
The CQQ ETF provides investors with access to major Chinese technology companies such as Tencent, Baidu and NetEase, while alleviating the risk of placing money directly into each individual stock. And the CQQQ has been providing great returns to investors, up 20% year-to-date and 40% over the last 12 months.
Over the past 10 years, CQQQ has posted an average annual return of 11.8%. Ten thousand dollars invested in CQQQ in 2010 would be worth $30,523 today.
Vanguard FTSE Europe ETF (VGK)
Expense Ratio: 0.08%
Europe is home to many great companies in a wide range of industries — from technology and banks to defense and consumer product firms. And a great way to gain exposure to a cross section of European companies is through the Vanguard FTSE Europe ETF. This ETF tracks the performance of the FTSE Developed Europe All Cap Index. The nice thing about this ETF is it includes a basket of stocks from all major markets in Europe — Austria, France, Germany, Ireland, Italy, the Netherlands Switzerland and the United Kingdom, among other countries.
The companies held in the Vanguard FTSE Europe ETF include Nestle, SAP and Royal Dutch Shell, to name only a couple. The reassuring thing about European companies and markets is that they are more established and stable than in many other parts of the world. Another benefit of the VGK ETF is that Vanguard charges some of the lowest fees in the industry for its products.
The expense ratio for this ETF is just 0.08% and it pays a quarterly dividend. In terms of performance, Vanguard’s FTSE Europe ETF is up 6% year-to-date and also up 6% after 10 years.
Schwab Emerging Markets Equity ETF (SCHE)
Expense Ratio: 0.11%
Emerging markets can be volatile and risky, but they can also be lucrative. The Schwab Emerging Markets Equity ETF has $6 billion under management and invests in 20 emerging market countries, including China, India, Brazil, Malaysia and Mexico. The fund is tilted towards Chinese financials, but is still quite diversified with about 1,500 total components included within the ETF, including utilities, healthcare, real estate and energy. Top stock holdings include Taiwan Semiconductor, JD.com and Ping An Insurance.
The expense ratio for the SCHE ETF is 0.11%, and it too pays a dividend every six months in December and June. The ETF has a one year annualized return of 12.77%, 8.24% after five years and 3.57% after 10 years. As mentioned, emerging markets can be volatile and are best suited to investors who have a healthy appetite for risk.
However, a balanced ETF such as SCHE can provide great diversification and global exposure to offset U.S.-based investments.
ProShares Ultra MSCI Brazil Capped (UBR)
Expense Ratio: 0.95%
Investing in Brazil is not for everyone. The country’s economy has been in a depression since 2014, the result of falling commodity prices and the country’s inability to carry out necessary fiscal reforms. However, Brazil continues to have the largest economy in Latin America, and while investors may not want to put their money into individual Brazilian companies, the ProShares Ultra MSCI Brazil Capped ETF provides some nice exposure to the country of 210 million people.
UBR is what’s known as a leveraged ETF, meaning it may borrow money to buy securities. The fund seeks to achieve two times the return of the MSCI Brazil 25/50 stock index. The leveraged approach adds some additional risks for investors.
However, investors who can tolerate the risk and have a long time horizon may find the ends justify the means with this ETF. In 2017, this ETF returned 35.36%. While it won’t posts returns like that every year, it demonstrates the potential upside that can be found in emerging countries such as Brazil. The ETF’s share price has been hammered this year, but it has nearly doubled from its March low and now trades at just over $20 per share.
Global X FTSE Nordic Region ETF (GXF)
Expense Ratio: 0.56%
The Nordic region of Europe, which is comprised of the countries Finland, Sweden, Norway, Denmark and Iceland, is a hotbed of technology and innovation. And a smart way to get in on the action is to buy into the Nordic region through the Global X FTSE Nordic Region ETF. This fund invests in companies such as telecom Ericsson, automaker Volvo and international engineering company Kone.
Of all the ETFs on this list, GXF is the top performer, up 25.92% in the last year and 132.12% since it was founded in 2009 in the aftermath of the Great Recession. All of the companies included in this ETF are safe and reliable with a solid track record of earnings, and most of them are global leaders in their respective markets.
Of all the countries in Europe, the ones that comprise the continent’s northern Nordic region tend to be the most innovative and outward looking. The countries that gave the world everything from Lego (Denmark) to ABBA (Sweden) are among the top spenders on research and development in the world. Sweden and Finland each spend more than 3% of their gross domestic product (GDP) on research and development, outpacing the rest of Europe.
Investors who are keen on innovation, technology and growth may want to look to the Nordic area of Europe and to this well diversified ETF that has delivered big returns over the past decade.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
