shekel versus dollar 370.
(photo credit: REUTERS)
In last week’s column I discussed the need for investors to understand
differences in low-cost Exchange Traded Funds (ETFs). In short, how two ETFs
that are mimicking a similar asset class can be totally different, thus
rendering it of vital importance that investors look under the “hood” and
understand what they are investing in.
This week I would like to discuss
some relatively new ETFs that can help investors invest globally.
clients can testify, and as I have written here numerous times, I am a huge fan
of investing globally, ie. not only investing in the US. Why? Because the world
There is a massive creation of wealth that is taking place,
and it’s not happening in Western Europe or in North America.
trends hold, the size of the middle class in Europe will shrink by 20 percent
over the next 20 years, and more or less hold steady in the US.
across to Asia, or down to Latin America, and the middle class is estimated to
grow by 30-40% over the same time period. In the last few years alone, 40
million Brazilians have joined the ranks of the middle class.
investors will follow the money.
These economies, while now driven in
many cases by export, will start becoming more self-sufficient and local
consumers will power economic growth.
Recent history Investors have had
the opportunity to invest globally through ETFs. There were a host of products
available that could link investors to specific countries or geographies. The
problem was that one to two companies may have been so dominant in the index
being tracked that investors were being short-changed and not really gaining
exposure to individual market.
A case in point was the MSCI Israel
I wrote a few years ago about the makeup of that
Generic drug giant Teva Pharmaceuticals made up over 25% of the
index. As such, investors weren’t really investing in Israel, as they wanted –
rather they were investing in a single stock because its stock had such a
Another issue with country-specific ETFs is that
they may be dominated by one specific industry Take Brazil for
While investors may want to gain exposure to the 40m. people
that are now middle class, the more established offering of ETFs pretty much
only gave investors exposure to energy stocks.
Fresh ETFs Some upstart
ETF providers like WisdomTree and GlobalX have launched products that provide a
solution for those who want to invest globally.
GlobalX has launched an
ETF that tracks consumer stocks in Brazil. They are clearly trying to tap into
the explosive consumer market and have broken with the traditional Brazil
products that always featured huge weightings for energy.
Add to the mix
a World Cup and Olympic games – all in the next four years – and consumer stocks
have potential to move higher. They have also launched an ETF on ASEAN markets
(made up of the likes of Singapore, Indonesia, Malaysia and others) who are
estimated to have 300m. in the middle class in two years.
of ASEA is bigger than that of Brazil, India and Russia. Wisdomtree and their
flagship emerging market equity income fund has a strategy implemented that
limits the weighting of any sector to 10%, as well as limiting specific country
This allows investors to truly have exposure to more emerging
market economies and spreads out the exposure to a multitude of sectors. And
these are not the only three. The market has seen many new launches of these
kinds of targeted ETFs over the last year.
Double-edged sword While this
is seemingly good news for investors, it also has a drawback. It makes investing
even more complicated for do-ityourself investors. They now have even more
product and strategies to sift through.
For many individuals, it’s gotten
A few days ago I met with a lady who had managed her own
money for over a decade, since her husband had passed away.
She told me
that there are so many potential investments that she feels overwhelmed and felt
that it’s time to turn it over to a professional.
Investors should speak
with their financial adviser and discuss whether it makes sense to take
advantage of some of these new products – and if so, how? And they should ask if
they should continue to do it by themselves, or use a
professional.[email protected] Aaron Katsman is a licensed
financial adviser in Israel and the United States who helps people with US