International ETF

By: EconomyWatch   Date: 4 August 2009

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International ETF is a specific ETF that lets a trader invest in foreign based securities. These ETFs open the door for all the investors who want to safeguard their investments through global diversification. International ETFs are fast becoming the preferred mode of investment because of the financial advantages they possess.

 

How does International ETF work?  

International ETF is invested on the underlying indices, namely the index of the country that they are invested in. These ETFs try to replicate the same growth as shown by these indices. Most of the international ETFs try to invest in advanced countries to optimize profits and provide strong diversification by investing in hundred of companies.

 

Types of International ETFs
 

International ETFs can be classified into two categories:

  • Broad based international ETFs: These ETFs invest in different countries based on regions or other parameters such as European ETFs and the Far East ETFs.

  • The country specific International ETFs: They invest in specific countries like China, Sweden, Japan, India, and the UK.

 

Broad Based International ETFs versus Country Specific ETFs
 

Both of them carry their pros and cons. Here are the few points to consider before investing in either of the two international ETFs:

  • In broad based international ETFs, a majority of the investments might be just in one particular country. This can defeat the purpose of global diversification of the broad-based ETF.

  • Buy broad based ETFs when their portfolio is well distributed. If not, then buy different country specific ETFs to extract the same mileage collectively.

 

Advantages of International ETFs
 

International ETFs enable traders to invest globally without paying other high commissions. The main advantage besides the regular ETF advantages is that:

  • A trader can reap the benefits of other improving economies by investing in international ETFs.

  • With different countries becoming more receptive to foreign investments, the liquidity in the market has increased as well.  

Disadvantages of International ETF
 

There are a few disadvantages of international ETF that one must consider:

  • If a country’s economy goes down, the country specific ETF can cause huge losses.

  • The higher expense ratios than other ETFs can pose some challenges.

 

With the increased demand in international ETFs, many new types of ETFs with customizability and better control, will be devised. International ETF is the future of trading due to the shifting trends of development from the west towards the east.

 


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