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Australia, Austria, Brazil, China, Germany, South Africa and Sweden. So far this year, the exchange-traded funds that track the stock markets in these four countries are among the best-performing international investments out there. Take the iShares MSCI Brazil Index Fund, for example. Through the first four months of 2006, this proxy for the Brazilian stock market gained 32.6 per cent. The Chinese market, as reflected in the iShares FTSE/Xinhua China 25 Index Fund, was up 27.6 per cent, while the Swedish market, as contained in the iShares MSCI Sweden Index Fund, rose 20 per cent.
Close to 25 single-country ETFs are listed on the American and New York stock exchanges, and there are always at least a few at any given moment that offer something for investors in a speculative frame of mind. If a country's stock market is roaring, you can be sure that global equity fund managers have noted this and perhaps bought in. But the diversification requirements faced by most managers means they can only dip a toe into a particular country. The net result is that the scorching gains of a particular market are watered down by weaker returns elsewhere. If you focus on a single-market ETF, you get 100-per-cent pure exposure to what's hot.
Or, what's not. If you want to get an idea of the risk level of a single-country ETF, think along the lines of boom-bust. And don't stereotype emerging market as being the only market where you can lose as big as you win. Five years ago, the iShares MSCI Netherlands Index Fund began a two-year plunge from the $21 (U.S.) range to almost $10. Then, redemption. In the past three years, this ETF has delivered a cumulative gain of 92.5 per cent.
While there are a handful of single-country mutual funds — mainly focusing on Japan and China — and many single-country closed-end funds, ETFs are arguably the best way to play global investing hotspots. Because they're traded like stocks, you can set stop-loss orders on ETFs and thus cut your losses when a fund turns south on you. And because these funds are passive index-mirroring investments that don't require a lot of guidance from a manager, they offer very low management expenses. Global equity mutual funds commonly have management expense ratios between 2.5 per cent and 3 per cent, but single-country ETFs have MERs around 0.59 to 0.74 per cent. This is actually higher for an ETF — you can buy Canadian and U.S. market ETFs with MERs as low as 0.09 to 0.17 per cent.
These days, some of the most popular single-country ETFs, as measured by trading volume, include:
Don't feel comfortable picking individual countries? There's a decent alternative in the form of regional ETFs that cover Europe, Latin America and Asia. The iShares S&P Latin America 40 Fund is up about 23.5 per cent this year, and its three-year total gain is 264 per cent.
If flashy numbers like these get you wondering about buy-low opportunities in under-performing markets, here's some bad news. While we in Canada have been marvelling at our commodity-propelled stock market, many other global markets have been doing just fine as well. The net result is that many single-country ETFs today are momentum plays and, thus, perfect for the speculator looking for something hot.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.