One concept that has proven itself time and again is the importance of diversification. You should want companies in different industries, of different sizes, and in different geographical locations. With the U.S. being home to so many world-class companies, the latter can sometimes get overlooked.
A truly diversified portfolio should include international stocks, even if it's only a small portion. That's why the Schwab International Equity ETF (SCHF +0.29%) can be a great buy-and-hold portfolio addition for those who want exposure to international companies.
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Covering a lot of international ground
The Schwab International Equity ETF is an exchange-traded fund that contains roughly 1,500 mid-cap and large-cap stocks from developed international markets. Developed markets are those with stable economies, mature financial markets, and (relatively) stable political environments. This is different from emerging markets, which are usually seen as heading toward those same standards, but not quite there yet (examples include China, India, and Brazil).
Below are the 10 most represented countries in this Schwab ETF:
- Japan: 21.28%
- United Kingdom: 12.26%
- Canada: 10.76%
- France: 8.50%
- Germany: 7.78%
- Switzerland: 7.56%
- Australia: 6.16%
- South Korea: 4.58%
- Netherlands: 3.83%
- Spain: 2.93%
The other roughly 15% of the ETF is spread among other countries that are less than 1% represented.
More well-known companies in the ETF include Samsung (1.33% of the ETF), HSBC (1.04%), Nestlé (0.99%), Toyota (0.89%), and Shopify (0.78%).
A hedge against the U.S. economy
When you invest in SCHF, you shouldn't expect consistent market-beating returns (compared to the S&P 500). It's more of a hedge against the U.S. economy, protecting you when the U.S. economy is in a down period or when U.S. stocks become expensive.
An example of the latter can be seen this year. With artificial intelligence (AI) and tech stocks surging in valuations over the past couple of years, the S&P 500 has reached historically high levels, causing many investors to look outside the U.S. for cheaper and better-valued investment opportunities.
Through Dec. 22, the Schwab International Equity ETF has far outperformed the S&P 500, up nearly 29% compared to 16%.
NYSEMKT: SCHF
Key Data Points
Again, this isn't a gap that should be routinely expected, but it proves that having all your eggs in U.S. assets can sometimes cause you to miss out on better gains elsewhere in the world.
And even when SCHF underperforms the S&P 500, it can still serve as a good income source. Its current dividend yield is around 3.5%, which is above its 2.7% average over the past decade and nearly three times the S&P 500 average. SCHF's yield rivals that of other popular dividend ETFs.
The icing on the cake is its low fees, with a 0.03% expense ratio. That's one of the lowest that you'll find from any ETF, which matters a lot when you're planning to hold an ETF for the long haul.
