The 6 Best International ETFs To Diversify Your Portfolio
Investing in international companies can be tricky since you may not understand business in other countries. However, international ETFs are a great way to diversify into international companies without having to be an expert on individual stocks.
America is home to many of the world's largest and most prominent companies. Therefore, some American investors tend to ignore international equities.
However, there is no guarantee that America will remain the world's powerhouse economy. Therefore, your portfolio's lack of international exposure may also be considered risky.
What Are International ETFs
When searching for the best international ETFs, you will see options for emerging and developed markets. No standard metric differentiates these two, but you must know the general difference between emerging and developed markets.
Emerging Market Meaning
An emerging market is in the process of growth but is less mature than developed markets. As a result, the average household income in an emerging market is low, and they are more susceptible to economic instability.
Emerging markets include India, Mexico, Russia, Pakistan, Saudi Arabia, China, and Brazil.
Developed Market Meaning
Developed markets are more economically advanced and have higher household incomes. As a result, developed markets do not experience as much instability and have a higher standard of living.
Developed markets include most of Western Europe, Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, and the United States.
The Best International ETFs
1- Vanguard Total International Stock ETF ($VXUS)
The first international ETF on the list is a Vanguard fund, as you simply can’t beat the value and fees they provide. The Vanguard Total International Stock ETF is an excellent fund for diversity since it contains both emerging and developed markets.
This fund seeks to track the FTSE Global All Cap ex US Index. Therefore, this fund has a small amount of small-cap stocks in addition to large-cap stocks, providing investors with plenty of diversification around the world.
10 year average return: 3.33%
Expense ratio: 0.07%
Dividend yield: 4.57%
Number of stocks held: 7,843
Top Country Exposure Within $VXUS:
Source: ETF.com
2- iShares Core MSCI Total International Stock ETF ($IXUS)
The iShares Total International Stock ETF is another fund that tracks non-U.S. companies with various market capitalizations. This fund seeks to track an index composed of large, mid, and small-capitalization non-U.S. equities.
Additionally, the expense ratio is comparable to the Vanguard fund, making it an appetizing investment for anybody seeking international exposure.
5 year average return: 2.70%
Expense ratio: 0.07%
Dividend yield: 3.33%
Number of stocks held: 4,288
Top Country Exposure Within $IXUS:
Source: ETF.com
3- Vanguard Total World Stock Index ETF ($VT)
The Vanguard Total World Stock Index ETF will give investors exposure to both U.S. and non-U.S. equities. The fund allocates 60% of its capital to U.S. equities and the other 40% to international companies and seeks to track the FTSE Global All Cap Index.
This could be a great fund to add if you want to invest in just a single ETF and have exposure to global wealth creation.
The fund's top holdings mainly include U.S. equities, so it is not ideal if you only want exposure to international companies. However, this fund is a great all-in-one option if you want exposure to U.S. and global equities.
10 year average return: 7.55%
Expense ratio: 0.07%
Dividend yield: 2.78%
Number of stocks held: 9,454
Top Country Exposure Within $VT:
Source: ETF.com
4- Vanguard FTSE Developed Markets ETF ($VEA)
The Vanguard FTSE Developed Markets ETF provides investors exposure to developed markets such as Canada, Europe, and the Pacific region. Additionally, the fund invests in companies with various market capitalizations.
This fund is excellent for investors seeking exposure to developed markets with small to large-cap companies. The expense ratio is just .05%, and the ETF pays a high dividend yield of over 5%, unlike the other funds mentioned here.
10 year average return: 4.06%
Expense ratio: 0.05%
Dividend yield: 5.18%
Number of stocks held: 4,130
Top Country Exposure Within $VEA:
Source: ETF.com
5- Vanguard FTSE Emerging Markets ETF ($VWO)
The Vanguard FTSE Emerging Markets ETF exposes investors to emerging markets such as China, Brazil, Taiwan, and South Africa. The fund seeks to track the total returns of the FTSE Emerging Markets All Cap China Index. Additionally, the ETF includes companies ranging from small-cap to large-cap.
This fund is an excellent choice for investors who want to bet on less developed countries to grow rapidly.
However, since the fund does not include developed markets, it is a riskier investment than other international ETFs that invest in developed and emerging markets.
10 year average return: 1.45%
Expense ratio: 0.08%
Dividend yield: 2.95%
Number of stocks held: 5,415
Top Country Exposure Within $VWO:
Source: ETF.com
6- Schwab Emerging Markets Equity ETF ($SCHE)
The Schwab Emerging Markets Equity ETF seeks to track the returns of the FTSE Emerging Index. This fund invests in mid and large-cap equities, excluding small-caps, and includes over 20 emerging market countries.
Schwab is a trustworthy company, but the expense ratio of this fund is slightly higher than most of Vanguard's funds.
Nevertheless, this fund is an excellent choice for emerging market exposure, especially if you are skeptical about small-cap emerging market companies, which are generally riskier.
10 year average return: 3.11%
Expense ratio: 0.11%
Dividend yield: 0.60%
Number of stocks held: 1,814
Top Country Exposure Within $SCHE:
Source: ETF.com
The Best International Stock ETFs: Bottom Line
International stock ETFs are an excellent way for investors to gain exposure to foreign companies without the risk of selecting individual stocks. Unless you are an expert in business in foreign countries, it will be hard to find conviction in individual companies within various countries.
Many international ETF choices are available with different investment styles, including various market capitalizations and emerging and developing markets.
Therefore, investors must determine the optimal international ETF investments based on risk tolerance and investing goals.
Also, sign up for my email list to be the first to know when I publish a new blog post!
Want to keep learning? Check out some of my other blog posts:
As Always: Buy things that pay you to own them.
-Josh
Blog Post: #058
