Country ETFs are an alternative for investors wary of the stagnant U.S. economy.
The popularity of exchange-traded funds continues at an upward trajectory, and with the U.S. economy in a persistently stagnant state, country ETFs are coming into their own, Financial Planning reports.
Nearly a third of investors surveyed by Millionaire Corner in July said the investment possibilities of specific countries such as China, France, Germany, India, and South Africa had appeal to them (a slightly smaller percentage said they had interest in Brazil).
FPcited National Stock Exchange data that cash inflows to ETFs and the related exchange-traded notes comprised $73.2 billion year-to-date through August, up from 54 percent from the same time last year. Standard and Poor’s the magazine reports, are extolling country ETFs as an alternative to global sector ETFs, whose performance can be impacted by exposure to shaky economies in Europe and Japan.
ETFs rooted in countries that are either the world’s biggest producers or consumers of gold, for example, offer investors a route to invest in that most precious of metals that earlier this month topped $1,800 an ounce.
ETFs, like mutual funds, can help investors diversify their portfolios by offering exposure to the large number of investments held within the funds. One key advantage is that unlike mutual funds, they can be bought or sold at any time, and not just at the end of the day. They also do not have a minimum investment amount as do mutual funds.
One drawback for some to ETFs is the added risk factor because they do not have a significant track record. As of last July, more than 160 ETFs had been launched this year, according the Standard and Poor’s Equity Research. Track record is one of the primary factors that investors consider when selecting an investment, according to a 2011 wealth level study conducted by Millionaire Corner. Seventy percent of households with a net worth between $1 million and $4.9 million (not including primary residence) place importance on an investment’s past performance.
Risk is an even greater factor in investment selection. Eighty percent of Millionaire households place importance on an investment’s level of risk. Analysts do caution that securities that narrowly focus on a single country are subject to higher volatility.