Canadians tend to have a diversification problem.
There are thousands of Canadian investors who have all their assets in their home nation. Possible reasons for this include getting burned on exchange rates in the past, knowing Canadian companies better than foreign ones, or even just patriotic pride.
Others will expand their horizons, usually to the United States.
With many of the world’s top companies calling the U.S. home, it’s easy to justify true worldwide diversification can come from owning the S&P 500.
But it’s not quite that simple. Many investors could really benefit from exposure to different markets. ETFs make this incredibly easy.
One choice for investors looking for a little international flavor is the iShares MCSI World Index ETF (TSX:XWD). This ETF does have some significant U.S. exposure, with 60% of assets invested in the S&P 500.
An additional 4% of assets are invested in Canadian stocks. This leaves 36% of assets, which is invested in developed markets around the world. The fund has a 0.47% MER and yields 1.5%.
Another choice is the iShares MSCI Emerging Markets Index ETF (TSX:XEM), which has all of its assets invested in developing nations around the world. This ETF invests its cash in China (27% of assets), South Korea (15% of assets), Taiwan (12% of assets) and India (9% of assets), among others. It has exposure to 17 different developing economies.
The emerging markets ETF does have a little higher MER, which is currently 0.83%, but it does pay a much more attractive dividend. Today’s yield is 3.1%.
