Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some foreign-based stocks to your portfolio but don't have the time or expertise to hand-pick a few, the RevenueShares ADR ETF (NYSEMKT: RTR ) 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.
Unlike many international funds, this ETF weights its holdings by revenue, not market capitalization. Some smaller companies have more influence on it as a result. It also doesn't base itself on the MSCI EAFE index, which focuses mostly on Europe, the Far East, and Asia. It casts a wider net.
ETFs often sport lower expense ratios than their mutual fund cousins. The RevenueShares ETF's expense ratio -- its annual fee -- is a relatively low 0.49%. It recently yielded about 2.3%, too.
This ETF has lagged the MSCI EAFE index over the past three years, but the future counts much more than the past. 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.
The fund is fairly small, 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.
Why foreign 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 foreign companies had solid performances over the past year. Netherlands-based financial giant ING Groep (NYSE: ING ) surged 50%, as it sold off various assets as part of a multibillion-dollar government bailout agreement. It spun off a stake in its U.S. operations via an IPO earlier this year, with ING U.S. expected to be rebranded as Voya Financial.
Vodafone (NASDAQ: VOD ) gained 8%. The company holds a 45% stake in the successful Verizon Wireless business, with Verizon holding the other 55%. Vodafone shareholders are watching to see whether Verizon buys out the remaining 45%. The company may be less attractive without the Wireless stake, so there isn't uniform support for a buyout. In the meantime, Vodafone has been a solid dividend payer and has been buying back shares as well.
Other companies didn't do quite as well last year, but could see their fortunes change in the coming years. Spanish telecom concern Telefonica (NYSE: TEF ) gained 5%. The company is saddled with a lot of debt, and some see it as a possible acquisition target. Meanwhile, Telefonica is pushing Windows phones in Europe, and it has sold its Irish subsidiary.
ArcelorMittal (NYSE: MT ) dropped 22%, dealing with a weak global steel market. A giant in steel, it carries a lot of debt and hasn't been producing gobs of free cash flow lately. Still, some see it as promisingly priced now, with a forward P/E near 8, and a global economic recovery likely. Rising auto sales bode well for the steel company, too. Its stock is yielding about 6%.
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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