This is the first of a new series of posts covering investment selection. Each post will cover an asset class, highlighting selection factors to consider and listing filtered investment options.
Let’s say you’ve considered the track record of picking stocks, and accepted that using index funds and ETF’s is the right strategy for you. But which one do you choose? It seems like fund companies are coming out with new ETF’s everyday.
Today, let’s start with investments that cover foreign stocks in developed markets. Investing in foreign stocks along with US stocks is an easy way to diversify your stock portfolio. To keep things simple, I categorize stocks into three regions: US, foreign developed markets, and foreign emerging markets. How you define your asset classes is up to you.
So here are some of my requirements when selecting an investment for a given asset class:
- Does it represent the asset class I’m looking for? Since I use separate asset classes for developed and emerging markets, the investment I select here should only give me exposure to developed markets. Further, the investment should be diversified enough to cover the asset class as broadly as possible.
- The investment should be low-cost. Obviously looking at the expense ratio is a great start. Additionally, a high turnover ratio can indicate excessive trading that incurs unnecessary transaction costs and capital gains taxes.
- The fund manager must be committed to the product long term. ETF’s and index funds come and go all the time, so it’s best to stick with companies with a history of managing indexed investments. At the very least, make sure the investment you select is popular enough that it is an unlikely candidate for closure.
The following is a filtered list of ETF’s and index funds that satisfies the criteria listed at the end of the post. Yet another factor to consider is that certain investments are commission-free depending on the broker you use. For example, if you have a Vanguard account, you can trade Vanguard index funds and ETF’s without a commission.
|Name||Ticker||Fund Size ($ MM)||Net Expense Ratio||Turnover Ratio %||# of Holdings|
|Schwab International Equity ETF||SCHF||280||0.13||NA||795|
|Vanguard Europe Pacific ETF||VEA||5,947||0.15||9.00||935|
|Fidelity Spartan International Index Inv||FSIIX||8,120||0.20||2.00||1,000|
|Vanguard Tax-Managed Intl||VTMGX||5,947||0.20||9.00||935|
|Vanguard Developed Markets Index Inv||VDMIX||9,545||0.22||14.00||969|
|iShares MSCI EAFE Index||EFA||33,385||0.35||7.00||935|
|Principal International Eq Index Instl||PIDIX||354||0.35||NA||972|
|TIAA-CREF International Eq Idx Retire||TRIEX||1,618||0.41||31.00||983|
|Northern International Equity Index||NOINX||1,399||0.45||13.38||1,009|
|T. Rowe Price International Eq Index||PIEQX||361||0.50||23.40||1,373|
- Fund size of at least $250MM
- At least 500 holdings
- Emerging market exposure of 5% or less
- Net expense ratio of 0.50% or less
- Turnover ratio of 50% or less
- Minimum initial investment of $10,000 or less
- Available to the public without an advisor