International ETFs: What They Are and How They Work (2024)

FAQs

International ETFs: What They Are and How They Work? ›

International ETF is an exchange traded fund that specializes in foreign securities. An international ETF may track global markets or track a country-specific benchmark index. ETFs that invest in less developed country stocks or bonds are known as emerging markets or frontier markets ETFs.

An ETF, or Exchange Traded Fund is a simple and easy way to get access to investment markets. It is a pre-defined basket of bonds, stocks or commodities that we wrap into a fund and then we list onto the exchange so that everyone can use it.

ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.

International investing can be an effective way to diversify your equity holdings. While returns have lagged behind US markets, international ETFs provide diversification benefits as they tend to be less correlated to US equities.

Positive aspects of ETFs

The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs versus like mutual funds, and potential tax benefits.

Most ETF income is generated by the fund's underlying holdings. Typically, that means dividends from stocks or interest (coupons) from bonds. Dividends: These are a portion of the company's earnings paid out in cash or shares to stockholders on a per-share basis, sometimes to attract investors to buy the stock.

In addition, ETFs tend to have much lower expense ratios compared to actively managed funds, can be more tax-efficient, and offer the option to immediately reinvest dividends. Still, unique risks can arise from holding ETFs as well as tax considerations, depending on the type of ETF.

Passive, or index, ETFs generally track and aim to outperform a benchmark index. They provide access to many companies or investments in one trade, whereas individual stocks provide exposure to a single firm. As such, ETFs remove single-stock risk, or the risk inherent in being exposed to just one company.

Bottom line. ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.

How are ETFs and mutual funds different? How are they managed? While they can be actively or passively managed by fund managers, most ETFs are passive investments pegged to the performance of a particular index. Mutual funds come in both active and indexed varieties, but most are actively managed.

How does international ETF work? ›

International ETF is an exchange traded fund that specializes in foreign securities. An international ETF may track global markets or track a country-specific benchmark index. ETFs that invest in less developed country stocks or bonds are known as emerging markets or frontier markets ETFs.

Stocks from foreign markets offer higher payouts than their US counterparts, so you get a little more yield out of dividend ETFs that go abroad.

When selecting an ETF, investors should consider factors such as its level of assets, trading volume, and underlying index.

A cross between an index fund and a stock, they're transparent, easy to trade, and tax-efficient. They're also enticing because they consist of a bundle of assets (such as an index, sector, or commodity), so diversifying your portfolio is easy. You might have even seen them offered in your 401(k) or 529 college plan.

Key Takeaways. ETFs offer easy access to a diversified portfolio of assets. They're traded on stock exchanges throughout the trading day, providing you with the flexibility to buy or sell shares at market prices. ETFs typically have lower expense ratios than mutual funds because more of them are passively managed.

ETFs are, for the most part, safe from counterparty risk. Although scaremongers like to raise fears about securities-lending activity inside ETFs, it's mostly bunk: Securities-lending programs are usually over-collateralized and extremely safe. The one place where counterparty risk matters a lot is with ETNs.

ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.

Also, beyond an ETF share price, there is no minimum amount to invest, unlike for mutual funds. Any broker can turn an investor into a new ETF holder via a straightforward brokerage account. Investors can easily access the market or submarket they want to be in.

Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, which include low expense ratios, instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started.