Beyond the Greenback

The Case for ETFs

In addition to deciding in what part of the world you want to invest, it is critical to determine the instrument in which to invest.

We believe exchange-traded funds -- ETFs -- are a good choice for seasoned and unseasoned investors alike.

With the growth of ETFs, investing in a foreign country's currency is as easy as investing in any other stock, with the advantage of giving you a broad index.

This is the best option for a trend-following system that tracks the larger trend over a longer period of time, rather than individual stocks trending over days or weeks.

Any investment in a market comes with a recognized set of risks, but when the market is in a foreign country, there are some additional hazards which you need to keep in mind:

• Country or regional economic/natural/political issues occur from time to time that cause the local stock markets to suddenly perform poorly or fall out of synch with the major world markets. The East Asian financial crisis of 1997-99 is a good example of such events.
• Currency fluctuations can be primary considerations, but with the U.S. dollar in a long-term bear market, this may turn out to be more an asset than a risk.
• Typically, highflying stock markets also exhibit high volatility.
• The divergence between country indices and country funds can be a serious problem -- especially with closed-end ETFs and mutual funds, which are, for the most part, actively managed and do not track an index.