Pedestrians stand in front of an electronic board displaying the numbers of the Tokyo Stock Exchange share price in Tokyo on June 17.KAZUHIRO NOGI/Getty Images
Most Canadian investors have a “homer” bias. Their portfolios are heavily overweighted to Canadian companies.
While it’s true local companies are more familiar, this home-country bias is not a good way to maximize your returns. Rather, it’s a fast trip to investing mediocrity.
Most investors are familiar with, and practise, basic portfolio diversification. That’s the process of distributing your money among the three broad asset categories: equities, fixed income and cash. But it’s important to go beyond that and to apply geographic diversification as well. This is easily done using exchange-traded funds (ETFs), which offer broad diversification at a low cost.
Start with the United States. As of July 5, the S&P 500 index was up 16.72 per cent year-to-date, compared with 5.25 per cent for Toronto’s S&P/TSX Composite Index. It’s true that most of the heavy lifting is being done by the high-tech mega stocks such as Meta Platforms META-Q, Microsoft MSFT-Q, Alphabet GOOGL-Q, Nvidia NVDA-Q and Amazon AMZN-Q. But the U.S. has them. We don’t.
It’s easy to invest in the S&P 500. Almost every company that offers ETFs has at least one S&P fund. Just shop around.
Here are updates on three other international ETFs that we previously recommended in my Internet Wealth Builder newsletter, all of which are doing well.
CI Japan Equity Index ETF JAPN-T
Originally recommended on April 15, 2024, at $48.61. Closed Monday at $51.55.
Background: The mandate of this ETF is to track the price and yield performance of the WisdomTree Japan Equity Index CAD, before fees and expenses. The index consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80 per cent of their revenue from sources in Japan. That means it’s skewed toward companies with a significant global revenue base.
Performance: After bumping along for a few weeks, the ETF began to move higher in the last week of June and is now ahead 6.9 per cent since it was recommended in April. The decline in the value of the yen against the U.S. dollar, which makes Japanese exports cheaper, has been one of the main catalysts for the fund’s recent success.
The fund has never lost money over a calendar year and shows an average annual compound rate of return since inception of 14.37 per cent.
Key metrics: The fund was launched in August, 2018, and is quite small, with only $42.4-million in assets under management (AUM). The management fee is 0.48 per cent and the management expense ratio (MER) is 0.53 per cent.
Portfolio: About 27 per cent of the portfolio is invested in consumer goods, with 17 per cent in financials and almost 15 per cent in industrial goods. Top holdings are Mitsubishi UFJ Financial Group, Toyota Motor and Japan Tobacco.
Distributions: Payments are made quarterly, but the amount can vary significantly. Total payout in 2023 was about $0.60 a unit.
Outlook: The ETF has been on a strong run, with a one-year gain of 38.49 per cent to June 30. It obviously cannot keep up this pace forever, but there still seems to be some upside potential from here, especially if the yen remains cheap.
Action now: Buy.
iShares India Index ETF XID-T
Originally recommended on Oct. 26, 2023, at $46.36. Closed Monday at $56.31.
Background: The mandate of this ETF is to generate long-term capital growth by tracking the performance of India’s Nifty Fifty Index, net of expenses.
Performance: The fund is on a strong run. As of July 4, the year-to-date gain was 14.05 per cent. For the year to June 30, the fund was ahead 23.47 per cent. The 10-year average annual compound rate of return was 10.31 per cent.
Key metrics: The fund was launched in January, 2010, and currently holds $127-million in assets under management. The MER is 1.03 per cent, high for an ETF, but the good results make it a worthwhile expense. The risk rating is medium-high.
Portfolio: The ETF is heavily weighted to financials, which account for almost 35 per cent of assets under management. Other large sectors are information technology (12.7 per cent) and energy (12.34 per cent).
Top holdings are HDFC Bank (12.4 per cent), Reliance Industries (9.77 per cent), ICICI Bank (7.87 per cent) and Infosys Ltd. (5.47 per cent).
Distributions: The fund makes semi-annual payments, but they are usually very small. The most recent, on June 24, was for only 2.7 cents a unit.
Outlook: Canada-India relations are at an all-time low but that’s not having any impact on India’s burgeoning economy. India now has the largest population in the world and looks to be on the way to taking over from China as Asia’s largest economy.
Action now: Buy.
iShares MSCI Europe IMI Index ETF XEU-T
Originally recommended on April 22, 2019, at $24.43. Closed Monday at $30.18.
Background: This ETF provides exposure to small-, medium- and large-capitalization stocks from the developed countries of Europe.
Performance: The fund was ahead 11.15 per cent for the year as of July 4. The one-year gain to June 30 was 15.25 per cent and the average annual rate of return since inception was 6.87 per cent.
Key metrics: The fund was started in April, 2014, and has almost $310-million in assets under management. The MER is 0.28 per cent. The risk rating is medium.
Portfolio: There are more than 1,200 holdings in this fund, mostly concentrated in Britain (22.2 per cent), France (15.9 per cent), Switzerland (15.8 per cent) and Germany (14.7 per cent). Top positions include Novo Nordisk, ASML Holding (a technology company) and Nestle.
Distributions: Payments are made semi-annually. The latest, on June 24, was for $0.633 a unit.
Outlook: European stocks are doing better than most Canadians realize. Asia will outperform but Europe should offer lower volatility.
Action now: Buy.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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