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portfolio strategy

More than ever, your portfolio needs diversification into stock markets outside North America.

If you live and plan to retire in Canada, then a significant weighting to domestic stocks makes sense. You also want a good wedge of your portfolio in the high-flying U.S. market, but there’s a limit. The S&P 500 is 30 per cent weighted to technology stocks these days, and there are seven dominant stocks within that sector.

The case for international investing is that you get exposure to markets beyond Canada and the United States, without a big tech presence. The benchmark for international investing is the MSCI Europe Australasia Far East Index, commonly called EAFE. The big three EAFE sectors are financials, industrials and health care, with tech at just 9 per cent.

For help in picking an international equity fund, check out this fourth instalment of the 2024 Globe and Mail ETF Buyer’s Guide. All funds presented here are core funds, which means they’re suitable as your one and only international fund.

International investing delivers results, not just theoretical diversification. The one-year total return for the EAFE index to March 31 was 15.2 per cent, while it was just under 14 per cent for the S&P/TSX composite index. The EAFE index provides a useful guide to how your money is diversified when you get international exposure – Japan accounts for 25 per cent of the index, while the U.K. and European markets make up much of the rest.

Many of these funds come in versions with and without currency hedging, which eliminates the effect of fluctuations in the value of our dollar on returns. Unhedged funds are more popular for the most part, and thus they’re the focus in this edition of the ETF guide.

It’s widely thought that hedging is unnecessary if you’re a long-term investor holding a diversified group of international stocks, but hedged funds performed better in recent years. With hedging, your returns from non-Canadian stocks won’t be undermined when our dollar rises, nor will they be enhanced when the dollar falls. Unhedged funds do better when our dollar is falling and lag when the dollar rises.

This year’s ETF Buyer’s Guide has so far covered Canadian equity and bond funds and U.S. equity funds. Still to come: Canadian dividend funds and asset allocation funds.

For the tax implications of holding funds in a non-registered account, consult our ETF tax primer. (tgam.ca/ETF-tax-primer).

Here’s a look at the investing terms used in the ETF Buyer’s Guide:

Assets: Shown to give you a sense of how interested other investors are in a fund.

Management expense ratio (MER): The main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis.

Trading expense ratio (TER): Reflects the cost of stock trading to maintain the portfolio. TERs tend to be larger for international equity ETFs than other fund categories. You can get a five-year look at a fund’s TER, and MER, by reading its annual or semi-annual management report of fund performance. Links to these documents are included by ETF companies in their online fund profiles.

Yield: Based on the annual amount paid out in dividends.

50-day trading volume: Average number of shares traded daily over the previous 50 days; it’s easier to buy and sell at competitive prices if an ETF is heavily traded.

Number of holdings: Gives you an indication of whether a fund offers broad stock market coverage or holds a more concentrated portfolio that may behave differently than benchmark indexes.

Returns: Shown on an annualized total return basis, which means share price changes plus dividends.

Launch date: The older an ETF is, the more likely it is that you can look back at a history of returns through good markets and bad.



Download the source excel here.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 10:49am EDT.

SymbolName% changeLast
ZEA-T
BMO MSCI EAFE ETF
+0.26%23.26
ZDI-T
BMO International Dividend ETF
+0.7%24.52
HXDM-T
GX Intl Dvlpd Mkts Eqty Idx Corp Cls ETF
+0.21%47.08
XEF-T
Ishares Core MSCI EAFE IMI Index ETF
+0.31%38.36
QDX-T
Mackenzie International Equity Index ETF
+0.48%120.34
TPE-T
TD International Equity Index ETF
+0.27%22.46
VIDY-T
Vanguard FTSE Dev Ex Na High Div Yld ETF
+0.54%31.65
VIU-T
Vanguard FTSE Dev All Cap Na ETF
+0.2%35.02

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