We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus.
The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks.
Here are two South American ETFs we cover regularly in Canadian Wealth Advisor.
ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND (New York Exchange symbol ECH; buy or sell through brokers; ca.ishares.com/home.htm) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that are mainly traded on the Santiago Stock Exchange.
Chile is the world’s biggest copper producer and a major supplier to Asian markets.
The fund’s top holdings are S.A.C.I. Falabella (retail), 9.2%; Empresas Copec SA (conglomerate), 8.6%; Enersis AS (electricity), 8.4%; Empresa Nacional de Electricidad (electricity), 6.7%; Cencosud SA (retailer), 5.7%; LATAM Airlines, 5.6%; Banco Santander Chile (banking), 4.7%; Banco de Chile, 4.3%; Empresas CMPC (pulp and paper), 4.2%; and Quimica y Minera de Chile (mining), 3.5%.
The fund’s industry breakdown is: Utilities, 24.9%; Financials, 17.6%; Consumer Staples, 13.3%; Consumer Discretionary, 10.9%; Materials, 10.5%; Industrials, 8.9%; Energy, 8.6%; Telecommunications, 2.7%; and Information Technology, 2.0%.
iShares MSCI Chile Investable Market Index Fund was launched on November 12, 2007. It has an expense ratio of 0.61%.
Petrobas and Vale are top holdings in Brazil fund
ISHARES MSCI BRAZIL INDEX FUND (New York Exchange symbol EWZ; buy or sell through brokers; ca.ishares.com/home.htm) is an exchange traded fund that is designed to track the Brazilian stock market.
Top holdings are Petrobras (oil and gas), 10.7%; Vale do Rio Doce (mining), 9.1%; Cia Itau Unibanco Holding (banking), 7.4%; Cia de Bebidas das Americas (beer and beverages), 6.9%; Banco Brandesco, 5.5%; and BRF SA (food), 3.5%.
The ETF was launched on July 10, 2000. It has an expense ratio of 0.61%.
The fund’s resource focus and concentration in certain stocks, such as Petrobras and Vale do Rio Doce, add risk. But both are high-quality stocks.
In the latest issue of Canadian Wealth Advisor, we look at the outlook for the Chilean economy based on the state of Asian demand and the forecast for copper prices. We also consider how export markets and resource prices are affecting the Brazilian economy. We conclude with our clear buy-hold-sell advice on both of these exchange-traded funds.
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In a slower global economy, foreign markets aren’t as popular as they used to be with brokers and the media. Do you believe it is still important to diversify with investments outside North America? What form do those investments take for you? Are you satisfied with your results?
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