If you have a view about the prospects of a certain country's
market, it's easier than ever to express it using an exchange
traded fund (
). The number of so-called single-country ETFs - ETFs focusing on
companies based in one particular country-on the market has
exploded in recent years.
Currently, there are about 150 such funds in the U.S. market,
nearly 30 of which were launched within the last two years and
about 50 of which were launched over the last three years. The
funds span 38 countries and multiple sectors and currently count
roughly $83 billion in assets. Here at BlackRock alone, iShares
now offers 54 such funds, up from 29 five years ago, and roughly
40 three years ago.
Yet despite these funds' growing availability and popularity,
misconceptions about them still abound. Below, I attempt to
debunk three of the misunderstandings I hear most often.
Single-country funds are all small and niche.
While some single-country funds are small and niche, a number,
like those representing the broad Japanese corporate market, are
huge and attract a large number of investors. For instance, the
iShares MSCI Japan ETF (
) has roughly $14 billion assets under management, and the
WisdomTree Japan Hedged Equity Fund has roughly $11 billion.
These two ETFs are the largest single-country ETFs as measured by
At the other end of the spectrum, extremely niche
single-country ETFs representing complicated investment
strategies (think "
" and "
") or representing countries that not many investors want to
access are much smaller. The iShares MSCI Capped Finland ETF
(EFNL), for instance, has just $37 million under management. In
short, not all single country funds are created equal.
There's no reason to invest in single-country funds if
you're already invested in broad international emerging market
and developed market funds.
There may be additional tactical exposures you'd want through a
single-country fund, and you may even want to rethink your broad
exposure approach and consider a single-country approach
Take what's happening in emerging markets, for example. As the
BlackRock Investment Institute pointed out last year in a paper
on investing in emerging markets
, disparities among emerging markets are growing fast, as
economies and financial markets mature at very different paces.
As such, the paper's authors conclude that the key in emerging
market investing today is to focus on companies that generate
cash flow in favored geographies, i.e. in select countries.
BlackRock's Chief Investment Strategist Russ Koesterich advocates
a similar select-country approach, and you can find out which
countries he likes in his latest
monthly market commentary
. Single-country ETFs are one way to express such
When you invest in single-country funds, you're only
investing in businesses focused on one specific country.
Many of the companies in single-country funds are global players,
meaning they do business both within, and beyond, their borders.
This is why it's so important to know your true exposure before
Want to learn more about single-country ETFs? Check out the
BlackRock "Fund Frenzy" challenge, a fun competition that kicks
off this week. You can pick a team of five single-country ETFs
that you think will perform best over the course of a month. If
your ETF team takes the top prize, you'll win a $20,000 donation
to a charity of your choice. Let the -- misconceptions go -- and
the games begin.
Sue Thompson, CIMA, Managing Director, is Head of the
Registered Investment Advisor Group, overseeing the firm's
iShares and 529 sales efforts with registered investment
advisors, family offices and asset managers. Sue is a
regular contributor to
You can find more of her posts
Information on the WisdomTree Japan Hedged Equity Fund is
provided strictly for illustrative purposes and should not be
deemed an offer to sell or a solicitation of an offer to buy
shares of the fund.
International investing involves risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to
adverse political, economic or other developments. These risks
often are heightened for investments in emerging/ developing
markets, in concentrations of single countries or smaller capital