How To Use Single Country ETFs

August 17, 2017 Based on that, which countries look the most undervalued to you and which look overvalued to you right now?

Veksler: Portugal and Colombia are very cheap. On the other hand, Denmark and the United States are expensive.
We own the Global X MSCI Portugal ETF (PGAL) and the Global X MSCI Colombia ETF (GXG). In addition to its stock market trading at inexpensive valuations, Portugal is exposed to the stronger economic growth of the eurozone, where political risks have subsided somewhat over the last several months.

Meanwhile, Colombia's economy and stock market are likely to benefit from increased economic growth due to the recently signed peace agreement with FARC [Revolutionary Armed Forces Of Colombia]. Before the agreement was signed, many areas within the country were not easily accessible to businesses, or they had to hire guards, which led to higher costs of doing business there.
Also, Colombia is likely to benefit from stronger expected growth in the United States, its largest export destination, where it sells crude oil and other commodities. As there are often multiple ETFs targeting the same country, how do you decide which to buy?

Veksler: Most of the time we use iShares, but there are some cases when some countries do not have iShares ETFs. In those cases, we use VanEck and Global X ETFs. You like the liquidity and the low cost of the iShares ETFs, I assume?

Veksler: Exactly. Can you walk me through how you build the portfolio based on the single- country ETFs?

Veksler: We use a tiered, equal-based model. When we’re excited about a country and the valuations are low, we give the highest weighting to these positions in the portfolio, up to 10%.

If we are less excited, but it's still an attractive ETF, we give it 7.5%. We try to simplify it and use 2.5% increments.

Smaller countries can get a maximum of only a 5% weighting in the portfolio. If we’re not sure about a smaller country, we start a position at around 2.5%.


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