In light of recent headlines, it’s not surprising that some investors consider investing in South Korea to be a risky proposition.

That’s because the country borders on North Korea, with its nuclear weapons and seemingly unstable leader. Certainly, North Korea’s unpredictability is a continuing drawback to investing in South Korea. However, the North Korean leader’s bluster has so far stopped short of any serious risk to the south.

As well, South Korea’s economy, which is Asia’s fourth largest, grew 5.9% in the fourth quarter of 2009. That’s the highest rate since 2007. Moreover, the World Bank’s 2010 ease of doing business survey recently ranked South Korea 19th, just behind Sweden and ahead of Germany and France. (Brazil, by comparison, ranked 129th and India 133rd.)

The country’s exports to China are also rising. That’s helping offset lower exports to the U.S. and Europe. China is now South Korea’s biggest export market. To top it off, South Korea is home to some of the world’s most successful multinational corporations, including Samsung Electronics, Hyundai Motor Co. and LG Electronics.

Use exchange-traded funds to tap into South Korean profits

Exchange-traded funds (ETFs) can be good choices for the part of your portfolio that you devote to investing in foreign countries, including South Korea.

That’s because directly investing in foreign markets can be complicated and risky, and high-quality ETFs let you make overseas investments with greater safety.

ETFs mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that are chosen to represent the holdings that go into the calculation of the index or sub-index.

Exchange-traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best ETFs offer well-diversified, tax-efficient portfolios with exceptionally low management fees. They are also very liquid.

In a just-published issue of Canadian Wealth Advisor, we give you our special analysis of five ETFs that may be appropriate for the part of your portfolio you devote to international investing. One of these funds is the IShares MSCI South Korea Index Fund (symbol EWY on New York).

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A low-cost way to hold the biggest South Korean companies

IShares MSCI South Korea Index Fund aims to track the MSCI Korea Index. The index aims to capture 85% of the total market capitalization of the South Korean stock market. The other 15% is unavailable for investment, partly due to limitations on foreign ownership.

The fund’s top holdings are Samsung Electronics, 18.0%; Posco (steel), 7.6%; Hyundai Motor Co., 3.9%; Shinhan Financial, 3.7%; KB Financial Group, 3.5%; LG Electronics, 2.2%; Samsung Electronics preferred shares, 2.2%; LG Chemical, 2.2%; Hynix Semiconductor, 2.2%; and Korea Electric Power, 2.1%.

The fund’s industry breakdown is as follows: Information Technology, 28.5%; Financials, 16.0%; Industrials, 14.9%; Materials, 14.0%; Consumer Discretionary, 12.0%; Consumer Staples, 5.0%; Telecommunication Services, 3.4%; Energy, 2.4%; Utilities, 2.4%; and Health Care, 0.5%.

iShares MSCI South Korea Index Fund was launched on May 9, 2000. The ETF has an expense ratio of 0.65%.

You can get our full analysis of five top exchange-traded funds for international investing, including our latest buy/sell/hold advice in the current issue of Canadian Wealth Advisor. What’s more, you can get this issue absolutely free. Click here to learn how.