With the stock market wobbling, many investors are paying more attention to fixed-income investments and reducing international equity exposure.But it's an excellent time to add international holdings -- provided you understand the risks and content of what you're buying.
Emerging ConcernsFirst, let's take a look at two emerging market index funds. As of mid-July, the (VEIEX) fund is up 6% year to date and 29% over the past 12 months, according to Morningstar. The iShares MSCI Emerging Market Index (EEM) exchange-traded fund is up 4.5% for the year to date and 25% for the past 12 months. These funds have diversified exposure in emerging markets, typically with somewhat higher concentrations in South Korea (18% to 20%), Taiwan (11.2% to 16.6%), South Africa (11.5% to 13.2%), Brazil (8% to 11%) and Hong Kong (8% to 10%). Emerging markets investments have been on a tear for the past three years -- Vanguard's emerging markets index, for example, produced a three-year annualized return of over 32% -- and that kind of performance simply is not sustainable. And, indeed, many emerging market, China and Latin American-focused funds have begun to correct. But current pricing is inflated. Emerging market investments should be long-term holdings in every portfolio, but wait until the speculative froth blows off. If you go in now, you'll be "buying high" and setting yourself up for a downdraft.
Foreign FlairThere are, moreover, other international indices with no, or only limited, emerging market exposure.
|Symbol||Fund or ETF||P/E||Dividend Yield||Performance (as of July 13)|
|EFV||iShares MSCI EAFE Value Index||n/a||n/a||9.32%||n/a|
|EFA||iShares MSCI EAFE Index||n/a||n/a||8.28%||22.33%|
|VDMIX||Vanguard Developed Markets Index||15.1||2.7||8.62%||22.71%|
|FSIIX||Fidelity Spartan International Index||15||3||8.59%||22.77%|
|VGTSX||Vanguard Total International Stock Index||14.4||2.8||8.20%||23.48%|
|SWINX||Schwab International Stock Index||14.6||2.9||8.88%||21.53%|