With Europe in the midst of an ongoing crisis, countries that once were on a tear such as China and India slowing down, and ongoing political unrest in the Middle East, why would you want to diversify your investments into other countries?
The idea of diversifying your assets across various countries to spread out your risk is nothing new. In fact, aren’t we always encouraged to look for those unexpected nuggets when things look bleakest? It may just be worth your while to research your options, which are plentiful in the exchange traded fund (ETF) arena. In fact, if you decide that you would like to invest in a specific country or countries, chances are there is an ETF that invests in that country.
This time, I will focus on three country ETFs mentioned in the feature article this issue, “Long-Term Trading Using Exchange Traded Funds” by Sylvain Vervoort. In the article, the author tests 21 iShares country ETFs, which are issued by Blackrock, Inc. I will look at three of these ETFs — iShares MSCI Switzerland Index Fund (EWL), iShares MSCI Canada Index Fund (EWC), and iShares MSCI Mexico Investable Market Index (EWW).
When considering adding country ETFs to your portfolio, the factors you need to examine will vary from country to country. When considering Switzerland, its positive factors are that it is politically stable, has a established economy, manageable debt, and a high credit rating. With European markets in a state of volatility, Switzerland is one country in the region that is shielded from this crisis. Although the pegging of the Swiss franc to the euro has established some ties with the European region, it is still isolated from most of Europe’s woes. Given Switzerland’s strong financial position in the global economy, it is a good idea to keep an eye on its currency value and interest rate moves.
For resource-rich countries like Canada, interest rates also play a role, as do commodity prices. Although Canada’s housing market is still running strong (unlike its neighbor to the south), it is still closely tied to the US. A weakening US market will have a negative effect on the Canadian economy.
FIGURE 1: iSHARES MSCI SWITZERLAND FUND (EWL)