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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to diversify your portfolio with a bunch of foreign-based large-cap stocks, the iShares MSCI EAFE Index ETF (NYSE: EFA ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a low 0.34%. It also sports a solid dividend yield of around 3.2%.
This ETF has roughly matched the performance of the world market over the past decade, and that's because to a great degree, it is the world market. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 5%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why foreign large caps?
Plenty of foreign large-cap companies had strong performances over the past year, but many struggled too, partly due to economic turmoil in Europe. The overall stock slump presents an attractive buying opportunity for those bullish on Europe's eventual recovery.
U.K.-based oil giant BP (NYSE: BP ) gained 9%. The company has been tackling debt repayment and its legal liabilities from the big 2010 Gulf of Mexico spill by selling off assets to raise tens of billions of dollars. The U.S. government is reportedly looking for at least $18 billion from BP, and there are reports that a major settlement may be near. Putting the spill and the uncertainty over its ultimate cost behind it should only help BP's stock. Meanwhile, bulls like its investments in wind power and biofuels, its rising dividend, and its recently secured permission to ship U.S. crude oil to Canada.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Spain-based Banco Santander (NYSE: SAN ) and France-based oil company Total (NYSE: TOT ) each gained 1%.
Banco Santander had almost as many branches in Latin America as in Europe (more than 6,000 in each) at the end of last year, comforting those worried about Europe's financial turmoil. But that still leaves a lot of business in Europe, and some fear that Europe's woes may get worse before they get better. The stock yields more than 8%, and though there are plenty of risks to consider, it's in a position to possibly buy assets of other, more troubled companies, while expanding into additional faster-growing markets, such as China. (Amusing tidbit for cocktail parties: Until recently, it sported the unfortunate ticker symbol STD.)
Negatives for Total include its exposure to Europe and the fact that it operated in some unstable areas, such as Iraq. But it has been exploring in locations such as off the coast of East Africa for natural gas and investing in liquefied natural gas in Australia. It plans to boost its production by 30% by 2017 and has invested significantly in renewable energies, as well. And surprising those who view the industry with scorn, Total's CEO recently expressed concerns about drilling in the Arctic because of potential environmental damage.
Germany-based conglomerate Siemens (NYSE: SI ) , down 1% and also battered by Europe's turmoil, has a promising future, in part because it can help other companies cut their energy costs. The company has been investing in the growing battery business, working on batteries for cars, trams, and more. It has also announced plans to buy back up to $3.6 billion of its stock. Still, its CEO recently announced plans to cut costs and employee count, and expressed a desire to boost its shrinking margins.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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