No matter how you prefer to globalize your investment portfolio, ETFs have you covered.
Want to pick Canadian and U.S. equity funds and then add some exposure to the rest of the world? Try an international ETF (the world outside North America). Do you value simplicity and want the entire world in a single fund that you can pair with a Canadian equity and bond fund to create a balanced portfolio? A global ETF might work for you (covers the entire world, with Canada either included or excluded).
There are also lots of ETFs that cover emerging markets and regions such as Europe and Asia. But the focus here is on proven, broadly diversified ways to globalize a portfolio in a single fund. Proven means the funds shown here have been around for at least three years and that they generate a reasonable level of trading. The less liquid an ETF is, the more potential there is for buyers to have to pay a premium to market price when buying, and accept a below-market price when selling.
As with U.S. equity funds, investors evaluating international funds must decide whether they want currency hedging. Hedging is about muting the distortion in returns caused by our dollar's ups and downs versus global currencies. It's useful to have hedging when the Canadian dollar is rising, but it's a drag on returns when our currency is falling. ETFs that are hedged typically have the term "CAD hedged" in their name. Many funds come in both hedged and unhedged versions.
The ETF Buyer's Guide has already covered funds in the Canadian and U.S. equity categories, as well as bonds. Still to come in the weeks ahead: Canadian dividend and diversified income ETFs, followed by U.S. and international dividend and income funds.
Here are some explanations of the terms you'll find in the guide.
Assets: Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio (MER): The main cost of owning an ETF on an ongoing basis; returns are shown on an after-fee basis.
Trading expense ratio (TER): The cost of trading commissions racked up by the managers of an ETF as they adjust the portfolio to keep it in line with a target index; add the TER to the MER for a fuller picture of a fund's cost.
Average 30-day trading volume on the TSX: Other instalments of this guide have required ETFs to generate volumes of at least 5,000 or 10,000 shares on an average daily basis. That standard has been relaxed here because a comparatively small number of international and global ETFs can meet it. This is a reminder of the tendency Canadian investors have to invest in their home stock market rather than globally.
Holdings: Top-three country weightings are important in understanding how an ETF approaches international or global exposure. Also, some TSX-listed international and global funds have U.S.-listed ETFs as their main holding. If that's the case, then there are implications for the withholding taxes that may apply to your dividends. See our ETF tax primer for more information.
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