You can give your portfolio international exposure by investing in international ETFs. These are like regular ETFs, invest a pooled corpus, but in the international market. Ideally, these funds invest in foreign-based securities (equities and bonds) targeting global, regional, or a specific country’s market.
In the international market, it may track an international index or a country-specific benchmark index. Investors can use these funds to disperse portfolio risk arising from geographic and political crises and increase exposure in the global equity market.
Understanding international index funds
ETFs are like mutual funds that invest a pool corpus in various investment options. Based on the chosen segment, ETFs are categorised. But their primary target is to offer low-cost access to general investors to a broad market spectrum. Through an ETF, investors can invest in bonds, gold, and even the forex industry. Similarly, international ETFs allow ordinary investors to invest in the global market, usually reserved for institutional and experienced players. These funds invest passively around a benchmark index, which can vary depending on the fund manager.
International ETFs carry economical and geo-political risks, especially those investing in a single country economy. If the country’s economy slumps, it will severely impact the returns from your investment. Conversely, funds that spread their investment across geographies are better at mitigating risks and improving returns. Funds with broader global outreach and those investing in advanced economies expand portfolio returns by investing in several companies.
Emerging market ETFs
International ETFs are increasingly becoming popular with investors as it allows lucrative investment opportunities in the international market. These funds specifically target emerging economies in developing countries. These enable investors from developed countries to get low-cost exposure in the global market and higher possibilities of returns. Depending on specific countries, risk and returns vary widely for these investments.
Why invest in international ETFs?
International ETFs give low-cost, easy access to invest in the foreign market and companies listed outside India.
Through these funds, investors can invest in developed economies and emerging economies for incredible growth.
It enables greater portfolio diversification with global exposure.
International ETFs are an easy way to hedge against rupee depreciation, which can lower the valuation of your investment.
Investors can invest in foreign markets with low or no correlation to the Indian market.
It offers effective hedging and reduces the portfolio’s overall risk from adverse domestic events as domestic events do not impact the international market.
International ETFs specialise in investing in foreign securities, investing passively in the global market, and tracking global indices, depending on the fund manager.
These funds allow investors to diversify their portfolios by investing in foreign company stocks, government bonds, and more.
ETFs that invest in developing countries stocks and bonds are called emerging market or frontier market ETFs.
Debt and equity funds are the two most popular choices for frontier market exchange-traded funds.
The investment cost in these funds is comparatively higher than other funds because these track the international market.
International ETFs investing in single country economies carry higher risks than funds that offer exposure to the broader market, invest in progressive countries’ economies and hundreds of companies.
Investing in international index funds helps disperse domestic economic and political risks since the global economy grows irrespective of domestic market conditions.
Vanguard Total International Stock ETF is an example of an international ETF.
The bottom line
ETFs are cost-effective ways to gain exposure in the broader market. If you want to diversify your portfolio by investing in the international market, international ETFs are great options to enjoy global exposure and higher liquidity. However, you must understand the risk factors before investing in the international market. One hands-off approach would be to select a board-based equity global ETF that offers exposure to several markets across several countries rather than in ETFs investing in a single country.