An exchange-traded fund (ETF) is a collection of stocks or bonds similar to passively managed index funds. ETFs can model and track an index or portfolio and can be purchased or sold on the stock exchange, similar to regular stocks.
In 2021, ETFs had one of their best years, drawing in record inflows. The demand stems from their low costs and numerous options for investors.
However, 2022 has been a challenging year for the U.S. stock market, and demand has dwindled from inflation issues, recession risks and geopolitical matters in Ukraine. Is it time to look at the best international ETFs?
Best International ETFs
To find the best international ETFs, you can’t just search for one individual factor. Not all ETFs are alike. For example, they might aim for high yields, seek growth or confine their holdings to a particular sector.
This article will look into the best international ETFs to help you diversify your investment portfolio.
1. Vanguard FTSE Europe ETF (NYSEARCA: VGK)
You can find numerous ETFs from Europe in multiple industries such as technology or consumer products.
The Vanguard FTSE Europe ETF (NYSEARCA: VGK) is ideal if you are looking for a well-rounded International ETF. The ETF holds over 1,300 stocks with a total net asset value of $20.94 billion. In addition, the ETF has various stocks from many different sectors, with its three biggest industries being financial services, healthcare and industrials.
Nestle, Roche and AstraZeneca are just a few stocks that make up most of its stock portfolio. VGK is advantageous for investors because of its numerous stocks and industries across the European markets, aiming to spread investor risk appropriately.
The ETF has an expense ratio of 0.8%.
2. Schwab Emerging Markets Equity ETF (NYSEARCA: SCHE)
The Schwab Emerging Markets Equity ETF (NYSEARCA: SCHE) is an excellent ETF for investors hoping to achieve strong returns. Emerging markets can produce significant profits for investors willing to take on more considerable risk and volatile markets.
The passively managed ETF has $8.47 billion in assets under management, with its most extensive stock being Taiwan Semiconductor Manufacturing. Its top sectors are financial services, technology and consumer cyclical.
The ETF invests in emerging stocks as well as emerging countries such as China, Taiwan, India and Brazil.
SCHE has a net expense ratio of 0.11%. SCHE could be an ETF to look at if you want a diverse range of stocks with exposure to the global market to diversify.
3. iShares Core MSCI Total International Stock ETF (IXUS)
The iShares Core MSCI Total International Stock ETF (NASDAQ: IXUS) could also work well for investors looking to diversify. The IXUS allows investors to diversify into emerging markets and developed markets across different geographies.
iShares holds the most weight in the Taiwan Semiconductor Manufacturing stock but invests in developed stocks such as Nestle and Tencent Holdings. In addition, the company has investments in industrials, healthcare and technology.
The ETF has a low net expense ratio of just 0.07% and is a reliable ETF for less risk-inclined individuals. It currently holds $27.85 billion in total net assets.
If you want to gain exposure to international stocks with the potential for excellent yearly returns, IXUS could be an ideal ETF.
4. Vanguard Total International Stock ETF Index Fund (NYSEARCA: VT)
If you're an investor looking to access stocks from all across the world, then the Vanguard Total World Stock ETF Index Fund (NYSEARCA: VT) ETF is one to keep an eye on. The opportunities for high growth are excellent; however, with high potential growth comes an increased level of risk.
The Vanguard ETF VT invests in a variety of stocks, and its top holdings include Apple, Microsoft and Amazon. Technology is the most significant sector. However, it also holds stocks in financial services and healthcare.
Despite its diversification in global stocks, the VT ETF is considered to have an average risk profile.
VT has a total of $32.55 billion in total net assets with an expense ratio of 0.07%. This ETF could be one to look out for if you seek a solid ETF with international equities exposure.
5. Invesco China Technology ETF (NYSEARCA: CQQQ)
Invesco is a well-respected fund for investors. However, the company’s funds tend to have relatively high expense ratios, which is not ideal for everyone. Its net expense ratio currently sits at 0.7%.
Invesco is known for producing great returns, and the Invesco China Technology ETF (NYSEARCA: CQQQ) is one of the best. Past performance, however, is not an indicator of future success.
The fund closely tracks the FTSE China Incl A 25% Technology Capped Index. The index is made up of mid- and large-cap tech companies in China and holds $1.03 billion in total net assets.
Although it may not be as large as the other ETFs, it has strong potential to continue its growth trajectory.
The ETF's most significant holdings include Meituan, Tencent Holdings and Baidu. Its top sectors include technology, communication services and consumer cyclical.
Benefits of an ETF
ETFs can be a great investment choice for the long term, with some of the top international ETFs listed above. With millions of stocks, bonds and other investment options, why should you invest in an ETF? Listed below are the benefits of investing in an ETF.
- Flexibility: The problem with traditional mutual funds is they can only be traded once per day. However, you can buy and sell shares of an ETF during the day, just like a stock. Investors can trade ETFs on margin by borrowing money from a broker.
- Diversification: Investors likely want to gain exposure to different sectors or industries across the globe but do not have the expertise in those areas. ETFs give you a wide variety of options to trade from without needing experience in one sector. Meanwhile, this provides a safety net as one sector may offset another industry's losses. Diversification can control risk and boost profits in the long term.
- Lower fees: If you are a long-term investor, ETFs are passively managed, meaning most ETFs have lower expense ratios than actively managed funds. Mutual funds tend to have higher costs due to management costs, further expenses, service fees and payments to a board of directors. These fees then fall onto the investors. An excellent alternative is a passively managed ETF.
- Premium price: Each ETF will likely trade at a price in line with its underlying securities. If this is not the case and the price is considerably higher or lower than the funds' value, action will take place to bring its price back to consistent levels. ETFs trade on supply and demand, offering investors the chance to purchase an ETF at an ideal or premium price.
Drawbacks of ETF Investing
You may have convinced yourself that ETFs are a flawless model and the best investment option. However, ETFs carry their drawbacks, too, just as the stock market does.
- Intraday price movements: ETFs trade similarly to stocks, so for short-term investors, entry and exit levels will be crucial, and swings in prices may be damaging to profits. However, if you are looking at longer-term investments, small changes in daily prices may not be of concern.
- Costs: Compared to mutual funds, ETF costs are relatively low and an excellent alternative. However, in comparison to a specific stock, ETF costs are higher for the majority of investors. Stocks tend to add a charge for the spread, whereas ETFs may charge commission fees. Investing in low-volume indexes may result in larger spreads and higher costs.
- Lower Dividends: When investing in ETFs, the dividend yield is not as high as owning an individual or group of dividend-paying stocks. ETFs track a specific market, meaning its average dividend yield will probably be lower than investing in the highest-yield dividend stock.
Can ETFs Diversify Your Portfolio?
Diversification can be achieved by spreading your investments across multiple asset classes, holdings or geographical regions. ETFs help with diversification as you obtain a basket of stocks in a particular index or industry instead of one individual stock.
Ownership of many rather than a few spreads your risk and expands your holdings.
A considerable advantage of ETFs is the choice it puts into the hands of the investor. The thousands of ETFs to choose from offer any investor the option of which market, country or industry to invest in. If you invest in the right ETFs, you can expand your investments across numerous markets to design the optimal portfolio with maximum returns and low risk.
Maximize Your Investment Strategy with International ETFs
The best international ETFs depend on a variety of factors including individual investor goals, risk tolerance, and current market conditions. While some investors may prefer broad-based ETFs that provide exposure to a wide range of countries and sectors, others may be more interested in sector-specific or single country ETFs.
Investors should perform their own research before investing in any particular international ETF to ensure that it meets their specific investment needs. With so many options available, investors should have no trouble finding a suitable international ETF to meet their investing goals.
Compare ETF Brokers
Now you have an idea of some of the best international ETFs available, you can assess ETF providers, a few of which are listed below.
Frequently Asked Questions
Are international ETFs a good investment?
International ETFs are a practical investment choice to diversify your equity holdings. While more significant returns may be achieved in the U.S. market, the diversification of international ETFs may bring more success in the long run. They can be less correlated to U.S. equities. The amount of international exposure you want depends on your risk tolerance.
What is the best international index?
You can access several international indexes, and people are not likely to agree on which one is best. Choosing the best will be personal to you and depend on whether you are looking for lower risk, higher profits, or other specifications. In addition, the factors of the best international indexes can change each day.
Is there a world ETF excluding USA?
Yes, there are ETFs that exclude the USA. Including IXUS, DFAX and DFIV.