In recognition of the launch of the Motley Fool Global Gains newsletter this past week, I thought it would be a great time to take a look at how exchange-traded funds (ETFs) can be used for investing in international indexes. More and more international ETFs enter the marketplace all the time -- in fact, there are far too many to consider in this short space. So let's narrow the focus by looking solely at ETFs that provide broad-based international exposure.

Imagine an investor -- Jane, we'll call her -- who is looking to add an international component to her portfolio. She values simplicity and doesn't want to have to track and monitor too many individual investments. Jane is also mindful of costs. She doesn't want to end up paying an arm and a leg for fund management and/or administrative expenses.

Enter the broad-based international ETF. Both Vanguard and Barclays' iShares offer ETFs that could provide Jane with just the answer she's looking for.

Vanguard has three international offerings in its stable of ETFs, all based on regional indexes managed by MSCI (Morgan Stanley Capital International). These ETFs are:

  • The Vanguard European ETF (AMEX:VGK), with more than 600 European stocks, including the British energy giant BP PLC (NYSE:BP) and Swiss drug maker Novartis (NYSE:NVS).
  • The Vanguard Pacific ETF (AMEX:VPL), with more than 560 stocks from the Pacific region, starting with top holding Toyota Motor (NYSE:TM).
  • The Vanguard Emerging Markets ETF (AMEX:VWO), comprising more than 860 companies from countries with faster growing but generally more volatile economies.

Barclays' iShares offers literally dozens of international ETFs. But don't be overwhelmed: Most of these fall outside our hypothetical criteria, as they're primarily concentrated in specific markets -- Brazil, Mexico, Singapore, and so on. As we know, Jane is looking to cast a wider net. She quickly zooms in on two ETFs in the iShares universe: the MSCI EAFE Index Fund (AMEX:EFA) and the MSCI Emerging Markets Index Fund (AMEX:EEM). The former fund represents the European, Australian, and Far Eastern markets (hence, EAFE), covering the same ground as the Vanguard European and Pacific funds combined. Also, like Vanguard's, the iShares funds are based on the popular and well-regarded MSCI indexes.

As for Jane's other priority -- cost -- it turns out that both ETF companies make the grade. Vanguard wins in a side-by-side expense comparison (in fact, by a significant margin), but both companies clock in with expense ratios dramatically lower than the typical international mutual fund. For example, the average actively managed emerging markets fund has an expense ratio of over 2%. For the corresponding Vanguard and iShares ETFs, the expense ratios are dramatically lower, coming in at 0.30% and 0.75%, respectively.

With either the Vanguard or iShares ETFs serving as puzzle pieces, Jane could easily construct a fairly comprehensive international portfolio. In fact, with just a couple holdings (three for Vanguard), Jane could get wide exposure to equity markets in almost all four corners of the world. And it would take just two or three trades to do it.

Keep in mind that equities in emerging markets carry significantly more risk than those in more stable, industrialized regions. As a result, limiting exposure to emerging markets relative to your other international holdings would be wise. Our hypothetical investor, then, might want to place just $20 in an emerging market ETF for every $80 she socks away in ETFs tracking developed economies (either European or Pacific).

Are ETFs the perfect vehicles for broad-based international investing? Well, that's hard to say ... but they certainly give traditional international mutual funds a run for their money. As with all ETFs, be careful of excessive trading. Racking up a quick succession of $10 commissions can easily wipe out any expense advantage your ETFs may provide.

You can learn more about the advantages of ETFs -- and any potential pitfalls -- by visiting our ETF Center. I'd also like to encourage you to sign up for a free trial of the new Motley Fool Global Gains newsletter, a service focused on value-based international investing.

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Fool contributor Kevin Scollan does not own any shares of the securities mentioned above. The Motley Fool has a disclosure policy.