NEW YORK ( TheStreet) -- With much of Europe stuck in recession, investors have reason to be wary about international funds. More bad news from the eurozone could send markets reeling. But at a time when the outlook for the U.S. economy is uncertain, it is important to be globally diversified.To limit the risk of foreign investments, consider low-volatility ETFs that have proven relatively resilient during downturns. Top choices include iShares MSCI EAFE Minimum Volatility Index ( EFAV), iShares MSCI EAFE Growth Index ( EFG), and PowerShares International Dividend Achievers Portfolio ( PID). A particularly steady performer is iShares MSCI EAFE Minimum Volatility. The ETF demonstrated its value in the second quarter of this year when concerns about the European crisis sank foreign stocks. During the period, the MSCI EAFE index -- a popular foreign benchmark -- dropped 7.1%, but the Minimum Volatility fund only declined 1.0%, according to Morningstar. To control risk, the low-volatility portfolio includes steady stocks. The fund stays diversified by keeping sector and country weightings roughly in line with the MSCI EAFE universe. Holdings include such reliable performers as Nestle ( NSRGY) and drug makers GlaxoSmithKline ( GSK) and Roche Holding ( RHHBY) . While the ETF is only one year old, the benchmark has been operating since 2002. The minimum volatility benchmark has excelled in downturns. When MSCI EAFE dropped 43.1% in 2008, the minimum volatility benchmark declined 27.3%. In 2011, the low-volatility index about broke even, while the EAFE benchmark declined 11.7%.
The low-volatility approach can lag during roaring bull markets, but the strategy holds its own in rallies that favor high-quality blue chips. During the past year, the low-volatility ETF returned 15.9%, while the MSCI EAFE index gained 16%. Though some growth stocks can be volatile, the MSCI EAFE Growth ETF has excelled in downturns. "This is a good holding for someone who wants international exposure and prefers to take a defensive position," says Alex Bryan, a Morningstar analyst. To assemble the growth portfolio, the MSCI index designers divide the EAFE universe in half. Stocks with faster sales and earnings growth go into the growth benchmark, while the rest are considered value stocks. The final growth portfolio includes many high-quality stocks with less debt than average and higher profit margins. Holdings include alcoholic beverage maker Diageo ( DEO) and consumer products giant Unilever ( UL). Such powerhouses perform relatively well in downturns. Part of the reason that the growth fund weathered the turmoil of 2008 is that the portfolio holds few financials, which plunged during the downturn. The portfolio is overweight consumer staples, a category that tends to deliver consistent results. The growth fund has a sizable stake in Europe. But there is a relatively small weighting to the troubled economies of Southern Europe. Instead, the portfolio focuses on healthier countries such as Germany and Switzerland. Many holdings are strong multinationals that have been achieving solid growth by exporting to emerging markets. Another fund that holds high-quality stocks is PowerShares International Dividend Achievers. Holdings in the portfolio have increased their dividends for at least five consecutive years. Companies that pass the test tend to have strong cash flows and solid balance sheets. The fund has a dividend yield of 3.2%. The fund has 20% of its assets in telecoms, including many dominant service providers. Holdings include China Mobile ( CHL) and Telefonica, S.A. ( TEF), a Spanish provider that is growing in Latin America. The portfolio has 17% of assets in energy companies, including Norwegian giant Statoil ASA ( STO), a leading producer in the North Sea. The PowerShares portfolio has 20% of assets in Canadian companies, including Canadian Pacific Railway ( CP) and Canadian National Railway ( CNI). At the time of publication the author held no positions in any of the stocks mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.