3 Int’l ETFs With Huge Diversification

September 29, 2014

2. iShares MSCI Indonesia ETF (EIDO | B-99)

The investable Indonesian economy, as represented by EIDO, looks much more like the Malaysian economy than it does the American economy.

Like EWM, you won’t find any technology exposure in EIDO. Instead, you’ll find pumped-up exposure to the consumer cyclicals and telecommunications sectors. In part, this different sector-composition is what drives the weak correlation (0.28) between EIDO and U.S.-proxy IWV.

Adding a fund like EIDO to your portfolio can help assuage the pain of falling equity markets in the U.S.: During the financial crisis, the Indonesian economy was one of only three (along with China and India) from the G-20 to record growth.

During six-month periods where U.S. equities posted negative returns, EIDO outperformed by an average of 8 percent.


1. iShares MSCI All Peru Capped ETF (EPU | C-33)

Topping the list of best single-country ETFs for diversification is EPU. Peru’s economy looks nothing like America’s: As a resource-rich nation, EPU is heavily dependent on its metals and minerals exports to drive economic growth.

As a portion of the economy, basic materials companies are 15 times more important to the Peruvian economy than they are to the American economy. Said differently, basic materials companies account for roughly half of the investable Peruvian economy, but less than 4 percent of the American economy.

China’s huge growth in consumption of basic materials has pushed up prices and benefited the Peruvian economy. As the world continues to develop and populations continue to expand, the goods the metals and minerals that Peru exports will likely be in great demand.

Peru’s different economic composition helps explain why EPU is almost completely uncorrelated to U.S. equities (correlation coefficient of 0.19).

Not only did EPU outperform U.S. equities by an average of 8 percent during six-month horizons showing negative returns for the U.S., but it actually generated positive performance in 48 percent of the six-month periods where U.S. equities posted negative returns.



At the time this article was written, the author held no positions in the securities mentioned. Contact Spencer Bogart at [email protected].



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