Every Canadian investor has access to the U.S. market through their online broker, with most taking the opportunity to diversify their investments into the world’s largest country.
Most investors stop there, content in knowing that many popular U.S. companies are true multi-nationals, exporting products or operating around the world.
But this doesn’t offer true diversification. U.S. companies are forced to report results from around the world in U.S. Dollars. If the Dollar is strong, then earnings from these foreign subsidiaries are temporarily weak. This can distort valuations.
Instead, investors should seek to get their international diversification through ETFs, which physically invest in places like Europe, Japan, China, or Australia, among others.
One popular choice for investors is the Vanguard FTSE All-World Ex Canada Index ETF (TSX:VXC), which invests in markets around the world. It has positions in a remarkable 8,416 different stocks, with 54.5% of assets in U.S. stocks. That might be a little too much American exposure for some.
Vanguard has recently come out with the FTSE Developed All Cap Ex-North America ETF (TSX:VIU), which holds positions in 3,177 different companies in developed markets around the world that aren’t Canada or the United States.
Top holdings are dominated by nations like Japan (23.7% of assets), the United Kingdom (18.1%), France (8.1%), and Germany (8.1%). Australia, South Korea, and Hong Kong are also well represented.
Investors looking for true international diversification have choices. They just have to decide whether it includes U.S. exposure or not.
