This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Go International With Country Funds

The well-regarded stock market blog Investment Postcards in a recent post made the case for emerging markets being vulnerable to a near-term correction due to the very tight correlation to commodities and that commodities very recently have rolled over. Provided in the post is a very useful chart that clearly supports the thesis using the iShares MSCI Emerging Markets Index Fund (EEM) as a proxy for the space.

If you've been reading my articles over the last few years, you may recall my disdain for broad-based funds like EEM or the iShares MSCI EAFE Index Fund (EFA). They tend to include large allocations to undesirable investment destinations and blend away the attributes of many of the superior component countries serving to increase the correlation of the fund to the U.S. market which in turn makes for an ineffective way to diversify.

For investors who would rather not pick individual foreign stocks, I believe a better way to invest is with country funds. Obviously, countries like Brazil, which is one of the largest countries in EEM, is going to correlate very closely to most commodity indices, which over the longer term has been a good thing and is likely to continue to be an important exposure for many years to come. Commodity-based equity exposure should be one component of a foreign equity portfolio but so too should countries with no fundamental connection to commodities.

One example would be the iShares MSCI Turkey Investable Market Index Fund (TUR). Turkey has a large population (by European standards at 70 million), an average age in the low 20s, gross domestic product growth of 3.7%, and an inflation rate that is high at 8.6% but down considerably from its historical average. Turkey is a country that has become more important in the world economic order and will become all the more so if it is allowed to adopt the euro as its currency. The idea of a young population wanting to work in an evolving economy is easy to understand and the success of this theme can happen with no fundamental connection to commodities.

Another example would be South Korea and the iShares MSCI South Koreas Index Fund (EWY). Korea relies on exports of electronic components and automobiles, among other things, with little fundamental link to commodities. Obviously, South Korea has made a lot of news lately for the escalation of tensions with North Korea. If that is enough for you to want to avoid South Korea then that's another reason to avoid broad-based emerging markets funds as EEM has a 13% weighting in South Korea.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
EFA $57.38 0.28%
EEM $32.83 0.15%
TUR $40.31 0.32%
EIS $47.00 -1.07%
EPHE $34.41 1.30%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs