Market Overview

A Cheap International ETF Trip

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A Cheap International ETF Trip

International travel can be expensive, but thanks to exchange traded funds, investing in ex-U.S. markets can be downright cheap.

In recent years, data confirm advisors and investors are apt to embrace the least expensive ETFs, namely those with annual fees of 0.20 percent or less. Plenty of developed markets funds, including the Schwab International Equity ETF (NYSE: SCHF), fit that bill.

What Happened

The Schwab International Equity ETF charges just 0.06 percent per year, or $6 on a $10,000 investment, making it one of the least expensive funds in the international developed markets category. Schwab clients can realize additional savings with SCHF because, like all Schwab ETFs, the fund is available on the firm's commission-free ETF platform.

“SCHF has a well-diversified, cap-weighted portfolio that captures the market’s collective wisdom, and is complemented by one of the lowest expense ratios in the foreign large-blend Morningstar Category,” said Morningstar in a note out Friday.

SCHF is just days shy of its ninth birthday and has $16.4 billion in assets under manageable. The fund targets the FTSE Developed ex-U.S. Index, a benchmark heavy on developed Asia and Europe stocks.

Why It's Important

In addition to being inexpensive, SCHF provides a high level of diversification, an important trait for investors looking to avoid stock picking in markets outside the U.S.

“While the fund is limited to large- and mid-cap names, it still provides effective diversification,” said Morningstar. “It holds more than 1,300 stocks, and its 10 largest names account for only 10% of its assets. The fund excludes companies listed in emerging markets, while a typical competitor has 7% of its assets allocated to companies from developing regions. This modest difference can limit the portfolio’s diversification potential but shouldn’t hurt its long-term category-relative performance.”

The financial services and industrial sectors combine for 36 percent of SCHF's weight while the consumer staples and consumer discretionary sectors combine for 21.3 percent. Year-to-date, SCHF is slightly trailing the MSCI EAFE Index.

What's Next

“Market-cap-weighted funds, like this one, provide cost-efficient, diversified exposure to the opportunity set that active managers select from and make no active bets on specific regions, countries, sectors, or individual stocks,” according to Morningstar. “Using this technique, a stock’s weighting will float with changes in its price and will require very little turnover to maintain its desired exposures. Market-cap weighting essentially free-rides on the judgment of active investors. The allocation to each stock reflects their collective opinion about its relative value. Low turnover translates into low transaction costs.”

Morningstar has a Silver rating on SCHF.

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