Join Fund Library now and get free access to personalized features to help you manage your investments.
Most Canadian investors have a “homer” bias. Their portfolios are heavily overweighted to Canadian companies. While it’s true local companies are more familiar, this home-country bias is not a good way to maximize your returns. Rather, it’s a fast trip to investing mediocrity.
Most investors are familiar with, and practice, basic portfolio diversification. That’s the process of distributing your money among the three broad asset categories: equities, fixed income, and cash. But it’s important to go beyond that and to apply geographic diversification as well. This is easily done using exchange-traded funds (ETFs), which offer broad diversification at a low cost.
Start with the U.S. As of Aug. 23, the S&P 500 was up 16.3% year to date, compared with 12.3% for Toronto’s S&P/TSX Composite. It’s true that most of the heavy lifting is being done by the high-tech mega stocks, like Meta Platforms, Microsoft, Alphabet, Nvidia, and Amazon. But the U.S. has them. We don’t.
It's easy to invest in the S&P 500. Almost every company that offers ETFs has at least one S&P fund. Just shop around.
Here are three other international ETFs that I follow in my Internet Wealth Builder newsletter, all of which are doing well.
CI Wisdom Tree Japan Equity Index ETF (Hedged) (TSX: JAPN). The mandate of this ETF is to track the price and yield performance of the WisdomTree Japan Equity Index CAD, before fees and expenses. The Index consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue from sources in Japan. That means it’s skewed towards companies with a significant global revenue base.
After a pullback in July, the fund has recovered and is ahead 27.4% year to date as of July 31. The decline in the value of the yen against the U.S. dollar, which makes Japanese exports cheaper, has been one of the main catalysts for the fund’s recent success.
The fund has never lost money over a calendar year and shows an average annual compound rate of return since inception of 14.1%.
The fund was launched in August 2018 and is quite small, with only $42.4 million in assets under management (AUM). The management fee is 0.48% and the MER is 0.53%.
About 27% of the portfolio is invested in consumer goods, with 17% in financials and almost 15% in industrial goods. Top holdings are Mitsubishi UFJ Financial Group, Toyota Motor, and Japan Tobacco.
Distributions are made quarterly, but the amount can vary significantly. Total payout in 2023 was about $0.60 per unit.
The ETF has been on a strong run, with a one-year gain of 34.5%, to July 31. It obviously cannot keep up this pace forever, but there still seems to be some upside potential from here, especially if the yen remains cheap.
iShares India Index ETF (TSX: XID). The mandate of this ETF is to generate long-term capital growth by tracking the performance of India’s Nifty Fifty Index, net of expenses. The fund is on a strong run. As of July 31, the year-to-date gain was 16.8%. For the year to July 31, the fund was ahead 25.2%, The 10-year average annual compound rate of return was 10.4%.
The fund was launched in January 2010 and currently holds $127 million in assets under management. The MER is 1.03%, high for an ETF, but the good results make it a worthwhile expense. The risk rating is medium-high.
The ETF is heavily weighted to financials, which account for almost 35% of assets under management. Other large sectors are information technology (12.7%) and energy (12.34%). Top holdings are HDFC Bank (12.4%), Reliance Industries (9.77%), ICICI Bank (7.87%), and Infosys Ltd. (5.47%).
The fund makes semi-annual payments, but they are usually very small. The most recent, on June 24, was for only $0.027 per unit.
Canada-India relations are at an all-time low, but that’s not having any impact on India’s burgeoning economy. India now has the largest population in the world and looks to be on the way to taking over from China as Asia’s largest economy.
iShares MSCI Europe IMI Index ETF (TSX: XEU) provides exposure to small-, medium-, and large-capitalization stocks from the developed countries of Europe.
The fund was ahead 13.2% for the year to date as of July 31. The one-year gain to July 31 was 16.2%, and the average annual rate of return since inception was 7.2%.
The fund debuted in April 2014 and has almost $310 million in assets under management. The MER is 0.28%. There are over 1,200 holdings in this fund, mostly concentrated in the U.K. (22.2%), France (15.9%), Switzerland (15.8%), and Germany (14.7%). Top positions include Novo Nordisk, ASML Holding (a technology company), and Nestle.
Distributions are made semi-annually. The latest, on June 24, was for $0.633 per unit.
European stocks are doing better than most Canadians realize. Asia will outperform but Europe should offer lower volatility.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/Rawpixel
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
