Easy and Critical Diversification for Your Portfolio

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some international stocks to your portfolio, the iShares Core MSCI Total International Stock Index ETF  (NYSEMKT: IXUS  )  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.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a very low 0.16%, and it recently yielded 3.3%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF is too new to have a sufficient track record to assess. But as it contains more than 3,000 of the world's biggest companies, we can expect it to generally move in line with the overall world market, though not matching its returns exactly. 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.

Why international companies?
It's a smart idea to diversify your holdings not only by market size and industry, but also geographically. If the U.S. economy stalls or slides, other economies may still be performing well and could help offset losses in your portfolio. Many of the companies in this ETF are quite large and pay dividends. That should be welcome, as dividends can be quite powerful. Internationally reaped ones can be a little more complicated than domestic ones, though.

More than a handful of international companies had strong performances over the past year. Australia-based Westpac Banking (NYSE: WBK  ) , for example, soared 54% -- and still yields a fat 5.4%. It's been hampered, though, by the slowdown in China, as China uses many commodities produced by Australia. Some worry about a housing slowdown hurting the company, too.

U.K.-based alcoholic-beverage specialist Diageo (NYSE: DEO  ) , meanwhile, jumped 32%, as it invests more in China and introduces is Alexander & James e-commerce website. The company is financially strong and growing both its revenue and dividend, and aiming to turbocharge its growth via emerging markets.

Spain-based Banco Santander (NYSE: SAN  ) gained 12% and recently yielded 9.3% as well. It has been hurt by troubles in Europe, but the company actually does a lot of its business in Latin America, where it benefits from faster economic growth rates, such as Brazil's. It may be a while before all its operating regions are healthy, but while investors wait, they can collect a hefty payout -- which, even if halved, would still be significant. Some value-oriented investors see it as undervalued as well.

Other companies didn't do as well last year but could see their fortunes change in the coming years. BP (NYSE: BP  ) was roughly flat and yields 5.2%. The price that BP will ultimately pay for the Deepwater Horizon debacle is finally clearer, with the company paying $4 billion in criminal penalties. But it's now in civil court, with its ultimate costs still unknown. The company's recently reported quarter featured profits down 19%, largely because of lower production due to asset sales, but it has been profiting handsomely from investments in Russia. Some see the stock as attractive now, with its performance expected to improve and its plans to buy back up to $8 billion worth of stock. It still carries significant debt, though.

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.

To learn more about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy, check out The Motley Fool's special free report "3 ETFs Set to Soar During the Recovery." Just click here to access it now.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2349694, ~/Articles/ArticleHandler.aspx, 11/23/2014 7:17:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement