When Not to Be Stylish Going Abroad
One particularly strange quirk of the funds is that the value fund has a higher beta, at 0.86, than the growth fund, at 0.83. Typically, growth is thought to be more volatile.
The structure of both ETFs is currently set so that two big components could offset each other: Both have close to 25% each in Japan and the U.K.
The problem I see with these weightings is that, often, the Nikkei and the FTSE 100 tend to criss-cross in opposite directions.
Because both economies have very similar weighting in each of the funds, they may offset each other, resulting in the fund not being able to capture the desired effect from either.Because both funds have only been trading for six months, it may be too early to know definitively that this will be an issue, but it bears watching. In addition to similar weightings for Japan and the U.K., the two funds also have similar weights in France, at roughly 9%; Germany, at 6.5%; Switzerland, which is 7%; and Australia, at 5%. Again, this could result in offsets that cancel out the beneficial effects of all these different exposures.
Tangled Economic CyclesI believe that in trying to tilt a portfolio toward growth or value, an investor needs to be able to do some forward-looking analysis. An important determinant in whether to favor growth or value with an investment can be the current state of the economy you are investing in. Based on precedent, growth tends to do well later in the economic cycle. A fund that blends together many different countries, which presumably are all at different points in the economic cycle, makes this task much more difficult. And as I've pointed out above, EFG and EFV are invested all over the globe.
The movements of the Nikkei and FTSE 100 could offset each other
|Source: Yahoo! Finance|
Easier AlternativesAn investor seeking simple, broad-based foreign exposure would be better off holding just one fund, perhaps iShares MSCI EAFE Index Fund (EFA), and paying one commission than trying to blend EFG and EFV into some sort of EFA-beating combination. An investor who wants to isolate narrower themes for foreign equities may want to look to single-country funds and common stocks instead. These new ETFs are bold attempts to capture a trend, but again, investors are better served elsewhere.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider iShares MSCI EAFE Growth Fund and iShares MSCI EAFE Value Fund to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV