What Is an International ETF?
An international exchange-traded fund (ETF) is any ETF that invests specifically in foreign-based securities. The focus may be global, regional, or on a specific country and may hold equities or fixed-income securities.
Key Takeaways
- International ETF is an exchange traded fund that specializes in foreign securities.
- An international ETF may track global markets or track a country-specific benchmark index.
- ETFs that invest in less developed country stocks or bonds are known as emerging markets or frontier markets ETFs.
- Investors can use these ETFs to diversify the geographic and political risks associated with their portfolios.
Understanding International ETFs
International ETFs are typically invested passively around an underlying benchmark index, but the index may vary substantially from one fund manager to the next. Some funds, especially those with a wide global footprint or those that invest in countries with advanced economies, can provide strong diversification by investing in hundreds of companies. There are international ETFs to fit most portfolios, including those focused on earning dividends.
ETFs that invest in a single foreign country may carry higher risks than international ETFs that spread their investments among many countries. If a single country undergoes a major recession or other financial hardship, an ETF that only invests in securities based there could have a major performance shortfall. International ETFs are increasingly popular for U.S. investors amid strong global growth. Advances in globalization and financial regulation have opened more financial markets to outside investment. In general, expense ratios for international ETFs tend to be higher than the averages because of the higher costs to invest abroad.
Emerging Market ETFs
For U.S. investors, international funds can include developed, emerging, or frontier market investments in a range of asset classes. These funds can offer varying levels of risk and return. In addition to country-specific considerations, international funds are managed to various asset classes. Debt and equity funds are the two most common, providing a broad universe for investment. U.S. investors seeking to take more conservative positions can invest in governmentor corporate debt offerings. Equity funds offer diversified portfolios of stock investments thatcan be managed to a variety of objectives. Asset allocation funds offering a mix ofdebtand equity can provide for more balanced investments with the opportunity to invest in targeted regions of the world.
Example: The Vanguard Total International Stock ETF
The Vanguard Total International Stock ETF (NASDAQ:VXUS) was launched in 2011 and invests in global stocks, excluding U.S. stocks. Since its inception, VXUS has earned investors an annualized return of around 5% by tracking the performance of global company stocks listed on the FTSE Global All Cap ex U.S. Index. The target benchmark index follows large-, mid-, and small-cap equities of companies operating outside the United States.
The international equities held within VXUS provide investors with a unique opportunity to diversify a portfolio in both developed and emerging markets around the world. The stock movement of companies based overseas does not always have a direct correlation to domestic stock prices,providing investors an opportunityto take advantage of market movements that may differ from shifts in U.S. equity markets.
The Vanguard Total International Stock ETF invests at least 95% of all fund assets in an attempt to mimic the performance of the FTSE Global All Cap ex U.S. Index. VXUS is most heavily weighted in Europe, with 39.80% invested in the region, followed by 27% in the Pacific, 25.80% in emerging markets, and 7.00% in North America. Top holdings follow suit with the fund's target index, including Taiwan Semiconductor, Nestlé, Novo Nordisk, TencentHoldings, and Samsung Electronics.
FAQs
International ETF is an exchange traded fund that specializes in foreign securities. An international ETF may track global markets or track a country-specific benchmark index. ETFs that invest in less developed country stocks or bonds are known as emerging markets or frontier markets ETFs.
How do international ETFs work? ›
Depending on the index tracked by the ETF, it may own stocks issued by companies from around the world or it may limit its investable universe to companies in the United States. Some ETFs allow companies of all styles and sizes, while others limit their holdings based on the particular characteristics of a company.
What are ETFs and how do they work? ›
ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.
Are international ETFs a good investment? ›
International investing can be an effective way to diversify your equity holdings. While returns have lagged behind US markets, international ETFs provide diversification benefits as they tend to be less correlated to US equities.
What is the best way to explain ETF? ›
Exchange-traded funds (ETFs) are a type of index funds that track a basket of securities. Mutual funds are pooled investments into bonds, securities, and other instruments.
How do ETFs work for dummies? ›
ETFs are investment funds that track the performance of a specific index – like the STI Index or S&P 500. Just like stocks, you can trade ETFs on a stock exchange at any point during market hours.
How does an ETF make you money? ›
Most ETF income is generated by the fund's underlying holdings. Typically, that means dividends from stocks or interest (coupons) from bonds. Dividends: These are a portion of the company's earnings paid out in cash or shares to stockholders on a per-share basis, sometimes to attract investors to buy the stock.
How do ETFs pay you? ›
ETF issuers collect any dividends paid by the companies whose stocks are held in the fund, and they then pay those dividends to their shareholders. They may pay the money directly to the shareholders, or reinvest it in the fund.
What are ETFs pros and cons? ›
In addition, ETFs tend to have much lower expense ratios compared to actively managed funds, can be more tax-efficient, and offer the option to immediately reinvest dividends. Still, unique risks can arise from holding ETFs as well as tax considerations, depending on the type of ETF.
What are the 4 benefits of ETFs? ›
ETFs can offer lower operating costs than traditional open-end funds, flexible trading, greater transparency, and better tax efficiency in taxable accounts.
The largest International ETF is the Vanguard FTSE Developed Markets ETF VEA with $131.96B in assets. In the last trailing year, the best-performing International ETF was GBTC at 325.37%. The most recent ETF launched in the International space was the Cambria Chesapeake Pure Trend ETF MFUT on 05/29/24.
Is my money safe in an ETF? ›
ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
Do international ETFs pay dividends? ›
International Dividend ETFs focus on dividend-paying equities domiciled in any nation that is not the United States. This includes developed markets as well as emerging ones.
What are ETFs in simple words? ›
An exchange-traded fund, or ETF, is a basket of investments like stocks or bonds. Exchange-traded funds let you invest in lots of securities all at once, and ETFs often have lower fees than other types of funds. ETFs are traded more easily too. But like any financial product, ETFs aren't a one-size-fits-all solution.
Should I just put my money in ETF? ›
Advantages of investing in ETFs
ETFs tend to be less volatile than individual stocks, meaning your investment won't swing in value as much. The best ETFs have low expense ratios, the fund's cost as a percentage of your investment. The best may charge only a few dollars annually for every $10,000 invested.
Are ETFs good for beginners? ›
Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, which include low expense ratios, instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started.
Are international ETFs tax efficient? ›
Foreign-stock ETFs have all the structural tax efficiency benefits that U.S. stock ETFs do, but their tax-cost ratios tend to be a bit higher for one key reason: Foreign companies often pay higher dividends than U.S. companies, and those year-in, year-out payments lead to higher tax bills.
What is the difference between global and international ETF? ›
International ETFs seek investments outside of the U.S., providing exposure to specific regions or countries around the world. On the other hand, global ETFs encompass a broader range of investments, including both U.S and international companies, offering exposure to the entire global market.
How do I choose an international ETF? ›
When selecting an ETF, investors should consider factors such as its level of assets, trading volume, and underlying index.
