iShares Adds Emerging-Markets ETFs

On the other end of the spectrum, funds like iShares MSCI-Brazil(EWZ), Market Vectors Russia ETF(RSX) and iShares MSCI Turkey(TUR) offer exposure to individual countries.

Investors looking to build a long-term portfolio should consider choosing one of the broader funds, or selecting several country plays to increase the breadth of exposure. More active ETF investors may choose individual country funds to track global trends.

The second level of concentration to consider is oversized components. ETFs that use market capitalization or modified market capitalization to allocate assets often concentrate a large portion of funds into top components. In many emerging markets, single companies dominate because of their relative size. Emerging markets-ETFs, particularly single-country ETFs, reflect this balance and concentration.

Before purchasing an emerging-market ETF, examine the underlying holdings. Ideally, the top component should account for 10% or less of total assets. If you are looking to purchase a fund with larger concentrations, make sure to monitor those holdings in particular. A large component can hold sway over a portfolio.

The third level of concentration is the sector components. While iShares Turkey(TUR) has 84 holdings, more than 50% of the portfolio is allocated toward the financial sector. Nearly 50% of Market Vectors Russia is allocated to oil, gas and energy companies.

Before selecting an emerging-market ETF, investors should consider the underlying sector allocation. This is especially important when considering your portfolio as a whole. If you already have significant exposure to oil and gas in your portfolio, the addition of an emerging-markets ETF like RSX will amplify this position.

Investors need to check for overlap and concentration whenever they add funds to their portfolios. Sector concentration, geographical concentration and single-stock concentration are important factors to consider when building a well-rounded portfolio.

-- Written by Don Dion in Williamstown, Mass.

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