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Rob Carrick

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Letting your portfolio ride in style

Rob Carrick


Volatile stock markets are exhausting, if you play their game.

China’s up, then it’s down, then it’s back up again. Europe’s looking good, but Japan has stalled out. Keeping track will wear you out unless you’re an investing professional, so don’t even bother. Instead, get some exposure to all parts of the global market and let your portfolio ride.

An easy and flexible way to do this is to use the increasingly broad selection of exchange-traded funds that focus on markets outside North America. There are several dozen individual country ETFs, but they’re too risky for the buy-and-hold investor who doesn’t want to make frequent adjustments. A good alternative is to look at regional ETFs that cover emerging markets, the Far East and Europe.

Emerging market exposure is a must - these markets have the potential to grow much faster than the economies of industrialized countries and their stock markets can deliver the sort of gains that you don’t often see in Canada or the United States. There are two options for emerging market exposure - you can go with a broad fund like the iShares MSCI Emerging Markets Index Fund, or a more focused fund like the Claymore BRIC ETF, which tracks the markets of Brazil, Russia, India and China. The emerging market giants, in other words. The Claymore fund has the cheaper management expense ratio at 0.6 per cent compared to the iShares fund’s 0.75 per cent. The cheapest ETF in this area is the Vanguard Emerging Markets ETF, at 0.30 per cent.

There are a few different ways to attack the European market using ETFs, but the cheapest to own is the Vanguard European ETF, with a very low MER of 0.18 per cent. Top holdings in this fund include such familiar European names as HSBC, Vodafone, Nestle and BP. Other European ETFs include the iShares S&P Europe 350 Index Fund and the StreetTracks Dow Jones EURO STOXX 50 Index Fund. For the Far East, the Vanguard Pacific ETF is the low-cost leader with an MER of 0.18 per cent. This fund has about three-quarters of its assets in Japan, with the rest spread between Singapore, Hong Kong, Australia and New Zealand.

If you want to keep things simple, try one of a few ETFs that basically offer exposure to all global markets outside North American in a single package. For example, there are Canadian and U.S.-listed ETFs in the iShares family that track the MSCI Europe, Australasia and Far East. The Canadian version offers currency hedging so movements in the loonie don’t affect your returns, while the U.S. version does not. An alternative approach is the Claymore International Fundamental Index ETF, which tracks the 1,000 non-U.S. companies that meet certain screening criteria that relate to cashflow, dividends and such. Note: this fund has a small 4-per-cent weighting in Canada.

You’ll need a game plan for bolting all these ETFs into your portfolio. One possibility would be to take the equity portion of your portfolio and put one-third in Canada, one-third in the U.S. and another third in an equal mix of the BRIC, Europe and Far East ETFs. Or, simply substitute an EAFE fund for the regional funds and leave it at that.

If you’re browsing the selection of global ETFs available (GlobeinvestorGold’s filter function is a good way to do this), then you’ll quickly notice there are dozens of ETFs that track single countries like China. The iShares FTSE/Xinhua China 25 Index Fund has proved to be a popular and effective way for investors to play the Chinese economic juggernaut, but the 9-per-cent, one-day drop in early March tells you all you need to know about its volatility. But, diversify with a basket of global ETFs and you won’t have to play the volatility game.

Rob Carrick has been writing about personal finance, business and economics for more than 12 years.

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