Exchange-Traded Funds 

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Exchange-Traded Funds

Investors can use ETFs to invest in foreign stocks. There are ETFs that specialize in single countries such as South Africa, China, Taiwan, India, and Korea. These are country-specific index investments that are traded on the AMEX. Table 17–2 presents a list of country ETFs and their trading ticker symbols. These ETFs are offered by Barclays Global Investors. There are other groups that offer foreign ETFs such as State Street Global Advisors and the Vanguard Group’s Vipers.

Each ETF represents a basket of foreign stocks of that particular country that appeals to investors wanting to invest in that country. ETFs are purchased like individual stocks through a broker, discount broker, or online broker. The stocks trade on the AMEX with the corresponding ticker symbols for each country.

Table 17-2
Single-Country ETFs

Single-Country ETFs

As with closed-end funds, the net asset values (NAVs) are calculated at the end of each business day. Dividends from investment income and capital gains realized from the sale of securities are paid out at least once a year. These payouts would be net of fees and transaction costs incurred by the country ETFs.

The advantage of investing in foreign ETFs is that they provide a lower-cost passive approach to investing in the stocks of specific countries. The goal for each country ETF is to provide the same performance as that of the particular index of that country. However, many of these country funds do not have diversified portfolios because most of their investments are in a few companies. For example, the South Africa Index Fund had over 20 percent of its investments in two stocks (13 percent of its investments in Sasol, Ltd., and 7.8 percent invested in Standard Bank) (Salisbury, 2006, p. B4).

The risks are the same as those outlined earlier in this chapter for international investing, in addition to the specific risks that pertain to ETFs. Foreign ETFs might be subject to greater volatility because of the political and economic risks of the particular foreign country, in addition to the risks of withholding taxes, imposition of restrictions on the expatriation of capital, and the lower liquidity of the stocks. Single-country ETFs are also not considered to be fully diversified investments because in many countries there is a concentration of investments in certain industries.

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