Markets showing double-digit gains year-to-date include Turkey, Argentina, Brazil, Poland and Venezuela.
Many of the best foreign-stock ETF returns in the past year have come from funds specializing in Latin America, though the list is topped by the VanEck Vectors Russia Small-Cap ETF, up nearly 140 percent. The biggest losses were in stock ETFs focused on Nigeria and Egypt.
In a 2017 forecast that cites factors like rising copper prices as a boon for Chile and political change in South Africa, Zacks Investment Research concludes that “stocks from Brazil, Chile, Mexico and South Africa are particularly good choices.”
“We currently believe international stocks present the more attractive opportunity,” said Aradhana Kejriwal, chief investment officer at JOYN Advisors in Atlanta. “Any investor that believes in long-term investing and diversified portfolios should invest in international stocks.”
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ETFs allow one to play a hunch while getting far more diversification than is affordable with individual stocks. And ETFs allow investors to get in and out whenever they like.
Many financial advisors say the typical investor is wise to have up to half of his or her stock portfolio in non-U.S. issues. In fact, the Vanguard Total World Stock ETF, designed to track stocks worldwide, has half its assets in U.S. stocks, 40 percent in stocks of other developed countries and 10 percent in emerging-market stocks. It has returned more than 23 percent in the past 12 months, about the same as the Standard & Poor’s 500.
Americans have long been able to dabble in foreign equities through American depositary receipts, a kind of stand-in for a foreign stock. ADRs are traded on U.S exchanges just like U.S. stocks. Some brokers also handle trades of ordinary foreign equities on foreign exchanges for U.S. customers who want stocks from developed countries, though commissions can be steep for small investors. The investor keeps an account in dollars, which are converted to the foreign currency for a purchase, then converted back after the holding is sold. With any foreign stock investment, whether a direct purchase, mutual fund or ETF, there’s a risk that a winner can turn into a loser due to changing exchange rates if these portfolios do not include a currency-hedging overlay, which most do not.
