Finding an ETF with Foreign Country Exposure

This post is building off a previous analysis that showed that it may be beneficial to include a few different countries’ major companies’ stocks in your investment portfolio.

An exchange-traded fund or ETF allows you purchase a small part of many companies.  Two common ones are VTI, which is Vanguard Total Stock Market and VOO which is Vanguard S&P 500 ETFs.  They have low expense ratios of 0.03%.  Compare that to the actively managed funds which can have expense ratios greater than 1%.  The lower the expense ratio, the more money goes home with you.

There is one item that should be noted about investing in foreign companies. We also need to keep in mind the currency which the company uses and how strong it is in relation to the USD.  For example, the company’s share price may increase, but if the USD gets stronger during this period, it will eat away at your gains.

There are two great websites that let you search ETF’s by your given criteria:

http://www.etf.com/

etfdb.com and their Country Exposure Tool

Browsing these websites, we can see a ETFs that have exposure to the countries. A few countries (Burma, Libya, Romania, Ethiopia, and Iran) that I ranked highly did not have any exposure on the etfdb.com exposure tool. Other countries (Macau and Bangladesh) had very limited exposure in the ETFs. Other countries such as China, Philippines, India, Hong Kong, and Turkey had ETFs with a high amount of exposure. I did a few permutations with different weighting and added South Korea to the list.  A table that shows the ETF, expense ratio, and exposure to each country is shown below.

ETF Ticker ETF Name Exp Rat (%) Macau (%) Turkey (%) China (%) Bangladesh (%) Philippines (%) India (%) Hong Kong (%) S Korea (%) sum (%) No of countries
FLKR Franklin FTSE South Korea ETF 0.19 100 100 1
EPHE iShares MSCI Philippines ETF 0.59 99.52 99.52
TUR iShares MSCI Turkey ETF 0.59 100 100 1
FLCH Franklin FTSE China ETF 0.19 16.78 82.73 99.51 2
FLHK Franklin FTSE Hong Kong ETF 0.09 0.4 95.55 95.95 2
AIA iShares Asia 50 ETF 0.5 53.68 22.67 76.35 2
FLAX Franklin FTSE Asia ex Japan ETF 0.19 6.89 1.15 10.29 43.71 13.02 75.06 5
GMF SPDR S&P Emerging Asia Pacific 0.49 13.41 1.56 16.2 39.73 70.9 4
EMCG  WisdomTree Emerging Markets Consumer Growth Fund 0.32 9.53 3.7 8.7 21.88 11.53 55.34 5
IEMG iShares Core MSCI Emerging Markets ETF 0.14 6.38 9.11 27.78 11.86 55.13 4
ESGE iShares ESG MSCI EM ETF 0.25 4.85 8.95 28.44 11.55 53.79 4
SPEM SPDR Portfolio Emerging Markets ETF 0.11 9.42 11.06 29.8 50.28 3
VWO Vanguard FTSE Emerging Markets ETF 0.1 8.82 10.12 30.58 49.52 3
EEMV iShares Edge MSCI Min Vol Emerging Markets ETF 0.68 8.95 2.6 8.73 20.18 6.5 46.96 5
AAXJ iShares MSCI All Country Asia ex Japan ETF 0.72 7.98 1.02 9.84 4..5 13.17 32.01 4
VPL Vanguard FTSE Pacific ETF 0.1 8.07 11.35 19.42 2
VSGX ESG International Stock ETF 0.17 10.74 3.28 14.02 2
VXUS Vanguard Total International Stock ETF 0.08 9.78 3.19 12.97 2
FM iShares MSCI Frontier 100 ETF 0.79 5.28 5.28 1
XCEM Columbia EM Core ex-China ETF 0.16 0 0

As we can see, there are quite a few ETFs that have almost 100% exposure for individual countries, but these should be used sparingly because their 0.59% expense ratios. A combination of FLAX, TUR, and FM would get us a mixture that is pretty close to the countries that are the top of the list.

Let’s dive into FLAX for example; you should do this with the other ETFs as well. According to ETF.com, FLAX is mostly technology (34.91%) and financials (29.16%). The top holdings are Alibaba Group Holding (7.69%), Tencent Holdings (6.50%), and Taiwan Semiconductor (5.10%). We should to an assessment of the major companies in each ETF; I will break down Alibaba. You should look at the past few years of annual reports and a few quarterly reports. Looking at the 2019 annual report, the company settled a lawsuit in the USA, which left it in an unfavorable position. However, the company reports a 51% year over year increase in revenue and 242% increase in earnings per share. The company does not report carrying debt. It has has many years of growing revenues.

This is just on example of and ETF you can buy. You can select your own to meet your investment goals.

This article is for informational purposes only. It does not serve as investment advice or credit analysis. It should not be used as a recommendation to purchase any investments.

Disclaimer: I/we have positions in FLAX and Alibaba.

Why You Should Include Foreign Stocks in Your Investment Portfolio

Introduction

There are many differing opinions on if you should include foreign assets in your investment portfolio. Some say those in the USA should only have USA-based stocks and bonds. Others say you should have different percentages of foreign stocks and bonds. This post seeks to determine if there are other countries or regions that one should consider investment attention to.

Methods

I downloaded the following data from the CIA World Factbook for the word’s countries:

A total of 189 of the world’s countries were assessed.

For the analysis, the following transformations of the CIA World Factbook data were made:

  • Public debt as a % of GDP was multiplied by the per capita GDP to approximate the public debt per capita
  • External debt was divided by the population to approximate the External Debt per capita
  • The trade surplus or deficit was determined by subtracting the imports from the exports. Then this value was divided by the population to determine the approximate trade surplus (positive) or deficit (negative) per capita
  • The government reserves were divided by the population to approximate the government reserve amount per capita

Each one of the countries was given one point (scored) for each country that is surpassed. For example, the country with the largest GDP (China) was given a score of 189. The country with the smallest GDP (Anguilla) was given a score of 1. The countries with the least amount of public debt per capita (Macau and Timor-Leste) were given a score of 188.5 while the country with the largest public debt per capita (Singapore) was given a score of 1. Ties were given the average score.

Once scoring was complete, the score for each category was multiplied by a weighting factor and summed to determine the overall weighted score. Then each country was ranked by score.  The country with the greatest score was given a rank of 1. The weighting system is subjective by nature but was intended to give more importance to categories which would cause a country’s economy to excel or falter in the future.

Category Name Highest Score Weight
GDP ($) Greatest 0.20
GDP ($/Capita) Greatest 0.15
Public Debt ($/Capita) Least 0.15
External Debt ($/Capita) Least 0.10
Trade surplus or deficit ($/Capita) Greatest 0.05
GDP Growth Rate (%) Greatest 0.15
Industrial Production Growth Rate (%) Greatest 0.15
Government Reserves ($/capita) Greatest 0.05

Results

Based on the weighting system, the countries are ranked as follows (lower ranking is better):

Rank Country Rank Country Rank Country
1 Macau 57 Kyrgyzstan 113 Syria
2 Turkey 58 Madagascar 114 Grenada
3 China 59 Peru 115 Mauritius
4 Libya 60 Niger 116 Luxembourg
5 Bangladesh 61 Sri Lanka 117 Japan
6 Philippines 62 Nigeria 118 South Africa
7 India 63 Rwanda 119 Central African Republic
8 Burma 64 Albania 120 Colombia
9 Hong Kong 64 Nicaragua 121 El Salvador
10 Nepal 66 United Kingdom 122 Qatar
11 Romania 67 Brunei 123 Yemen
12 Ethiopia 68 Argentina 124 Denmark
13 Vietnam 69 Paraguay 125 Kuwait
14 Indonesia 70 Belarus 126 Afghanistan
15 Iran 71 Germany 127 Tonga
16 Tanzania 72 Cameroon 128 Brazil
17 Pakistan 73 Finland 129 Italy
18 Ghana 74 Slovenia 130 Chile
19 Cambodia 75 Russia 131 Croatia
20 Poland 76 Lesotho 132 Saint Lucia
21 Uzbekistan 77 Zambia 133 Iceland
22 Malaysia 78 Bolivia 134 Guinea-Bissau
23 Czechia 79 United States 135 Norway
24 Estonia 80 Sweden 136 Saint Kitts and Nevis
25 Senegal 81 Sierra Leone 137 Malawi
26 Kazakhstan 82 Cyprus 137 Sao Tome and Principe
27 Guinea 83 Netherlands 139 Angola
28 Cote d’Ivoire 84 New Zealand 140 Greece
29 Panama 85 West Bank 141 Jordan
30 Ireland 86 Guatemala 142 Iraq
31 Turkmenistan 87 Benin 143 Eswatini
32 Burkina Faso 88 Bhutan 144 Botswana
33 Latvia 89 Sudan 145 Ecuador
34 Korea, South 90 Togo 146 Bahamas, The
35 Egypt 91 Eritrea 147 Papua New Guinea
36 Laos 92 Portugal 148 Timor-Leste
37 Mali 93 Kosovo 149 Seychelles
38 Thailand 94 France 150 Bahrain
39 Bulgaria 95 Ukraine 151 Somalia
40 Uganda 96 Vanuatu 152 Cuba
41 Canada 97 Djibouti 153 Solomon Islands
42 Hungary 98 Moldova 154 Anguilla
43 Dominican Republic 99 Tajikistan 155 Malta
44 Kenya 100 Australia 156 Tunisia
45 Taiwan 101 Bosnia and Herzegovina 157 Belgium
46 Lithuania 102 Congo, Dem. Rep. 158 Cabo Verde
47 Singapore 103 Liberia 159 Mongolia
48 Georgia 104 Serbia 160 Uruguay
49 Morocco 105 Saudi Arabia 161 Montenegro
50 Algeria 106 Mexico 162 Zimbabwe
51 Spain 107 Slovakia 163 Venezuela
52 Israel 108 Fiji 164 Comoros
53 Honduras 109 United Arab Emirates 165 Mauritania
54 Armenia 110 Mozambique 166 Azerbaijan
55 Maldives 111 Switzerland 167 Haiti
56 Austria 112 Costa Rica 168 Oman

Additionally, the countries were also broken down into seven global regions. The lower the average rank, the better.

Region Average Rank
Africa 101
Arab States 119
Asia & Pacific 70
Europe 83
Middle east 103
North America 60
South/Latin America 129
Grand Total 95

Conclusions

Broken down by region, we can see that the economic situation of the North America is still quite good; it is the highest ranked region. The United States and Canada are ranked 79th and 41st, respectively. However, the USA is 182nd of 189 for public debt per capita and 169th for external debt. It is 131st in GDP growth and tied for 116th for government reserves.  These issues could create long term problems for the US Economy.

Thus, it appears that having foreign stocks is worthy of a look in your investment portfolio. If you can focus on countries that are positioned the best economically, your risk can be mitigated with problems underlying the United States economy.

Just because a country is ranked well here does not mean all of the publicly traded corporations that you can invest in will have good performance in your portfolio. The ranking here does not release you of the need to vet the company, country, or region before investing in it.

A look at ways to invest in these countries or regions will follow in a later post.

This article is for informational purposes only. It does not serve as investment advice or credit analysis. It should not be used as a recommendation to purchase any investments.

Source:

https://www.cia.gov/library/publications/resources/the-world-factbook/docs/rankorderguide.html