How To Use Single Country ETFs

Founder of Beyond Borders Investment Strategies discusses why single-country ETFs may be superior to broader int’l equity ETFs.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

Vitaly Veksler is founder and portfolio manager of Beyond Borders Investment Strategies, a boutique investment firm focused on international equities. Previously, he was vice president and investment analyst at BNY Mellon Asset Management. recently spoke with Veksler about his recent paper, Investment Lessons From Fishing; Building Portfolios From Single-Country ETFs, in which he outlines the benefits of investing in single-country ETFs. Why do you think the single-country ETF strategy is better than a more broad-based strategy?

Vitaly Veksler: In many cases, individual countries are trading at significantly lower valuations compared to the averages.
Also, in the broad indices, the largest countries have a very high weighting. Let’s say the weight of the four or five largest countries in an index is 60%. That means the other 40 countries are responsible for just 40%, or only 1%, on average.

If you’d like to be exposed to these largest countries, that's fine; the broad-based indices are very useful. But if you’re interested in getting exposure to smaller countries such as Peru, Malaysia, or any country like that, then it’s better to go with individual single-country ETFs. What valuation metrics do you use when deciding whether a country is undervalued or overvalued?

Veksler: We use several valuation measures to determine whether a country's market is overvalued or undervalued. Some of them include market-capitalization-to-GDP, price-to-earnings, price-to-book, price-to-cash-flows, and price-to-sales.

Market-capitalization-to-GDP, a long-term market valuation indicator, is our measure of choice in determining whether a country is overvalued or undervalued. This measure is a version of the Buffett Indicator, named after Warren Buffett, who stated in his interview with Fortune magazine in 2001 that market-cap-to-GNP is "probably the best single measure of where valuations stand at any given moment."

We use GDP [gross domestic product] instead of GNP [gross national product], because for most countries, GDPs have longer histories, while the values of these economic growth indicators are not that far apart. 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%. How many ETFs do you own at once, and what are your largest positions?

Veksler: It's a pretty concentrated portfolio, so we usually use between 15 to 20 ETFs.
Chile and Peru, two commodity-producing countries, are our largest positions. We own the iShares MSCI Chile Capped ETF (ECH) and the iShares MSCI All Peru Capped ETF (EPU).

Stock markets of both countries are trading at below-average valuations. I believe both of them are likely to benefit from strengthening global economic growth, and especially, growth in China and the U.S., their largest and second-largest export destinations.

Just yesterday, the IMF increased its forecast of China's economic growth for the next five years (2017-2021) from 6 to 6.4%. The U.S. tax and infrastructure reforms, if passed, would be major catalysts for increased demand for copper and other commodities exported by these two countries. In general, we've seen a lot of interest in international equities and international equity ETFs this year as they've outperformed their U.S. counterparts. Do you think this international outperformance will continue?

Veksler: Yes I do; it’s a valuation play. The U.S. market is very expensive, so that's a driver for people to invest internationally.
Also, as global growth continues and strengthens, international markets and emerging markets are benefitting the most―especially the commodity-producing countries. It's part valuation story and part economic growth story.

Contact Sumit Roy at [email protected]


Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.