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portfolio strategy

There’s a world of great companies outside North America and at some point there will be a reward for investing in them.

As the latest installment of The Globe and Mail ETF Buyer’s Guide shows, international equity funds have mostly been modest performers through the past five years. A few funds excelled, but most offered low single-digit returns. Why consider international exposure for your portfolios via ETFs? Four reasons:

  • Much more exposure to sectors like health care and consumer discretionary than the Canadian market, and less to volatile sectors like energy and materials, as well as financials.
  • Add exposure to global giants like Toyota, Nestle, Novartis, Samsung and Royal Dutch Shell to your portfolio.
  • Instant diversification through inclusion of developed markets in Asia and Europe, mainly Japan, Britain and France; there’s an option to add U.S. exposure to international stocks by using a global fund. (International funds exclude the North American market; global funds exclude only Canada.)
  • Much cheaper fees than international equity mutual funds

Canadians have been reluctant to add foreign content to their portfolios, so the selection of international and global ETFs isn’t as diverse as it is for Canadian and U.S. equity funds. This guide generally includes only funds with a five-year history, which also limits the field.

All funds presented here are core funds, which means they’re suitable as your one-and-only international or global fund. Many of these funds come in versions with and without currency hedging, which mutes the effect of fluctuations in the value of our dollar on returns. You’ll also find minimum or low volatility funds, which hold stocks that have milder ups and downs than the broader market.

Click here to download an Excel version of the guide.



Here’s a look at some of the 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): The cost of trading commissions racked up by the managers of an ETF; add the TER to the MER for a full picture of a fund’s cost. Note that international ETFs tend to have higher TERs than other categories.

Yield: An annualized number based on the latest dividend payout.

Distribution frequency: Some international funds pay dividends on a semi-annual basis, which means they’re not ideal for income-seeking investors who want more regular income payments.

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.

Sector weightings: Included to help you verify how well a global or international equity ETF will diversify your Canadian holdings with exposure to sectors such as tech and health care.

Three-year beta: Beta is a measure of volatility that compares funds to a benchmark stock index, which always has a beta of 1.0. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.

Inception 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.

Notes: Market data as of March 2. Returns to Feb. 28. Sources: Rob Carrick, ETF company websites, Globeinvestor.com

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