How to Invest in Different Markets: A Guide to Country FinEx ETFs

Today, 21 FinEx ETFs are traded on the Moscow Exchange. On the one hand, a wide range of funds makes it possible to effectively diversify the investment portfolio, and on the other hand, it complicates the choice of those instruments that are needed by a particular investor. In this post, we will look at country diversification and how it can be achieved with FinEx ETF equity funds.

What ETFs must be in a “good” investment portfolio? This question worries most investors, but there is simply no universal answer to it: each investor will have his own good portfolio. The investment horizon, the investor’s risk profile and risk tolerance are critical. Based on these parameters

But whatever the final allocation, any good investment portfolio must be diversified. Diversification happens at least

You can find the classification of FinEx ETFs by asset class

Diversification levels of a good portfolio

Suppose the investor knows how much of his investment portfolio he

The next challenge is to choose a specific allocation within that asset class. To comply with the principles of diversification, it is necessary to include in the portfolio a set of instruments that have a low correlation with each other (while one falls, the other grows). Processes in the economy are cyclical — at different times in different countries there are local ups and downs of stock markets, their corrections. If you diversify your portfolio with securities of companies from different countries, you can avoid serious market drawdowns and minimize risks over a long horizon.

One of the possible approaches to determining the shares is to build on the capitalization of the markets. Take, for example, the distribution of the global MSCI ACWI index. As of October 2021, it consists of:

Distribution by market capitalization in iShares MSCI ACWI ETF,%

If you do not want to figure out how much to allocate to a specific market, you can use ready-made global funds

Despite the similarity in composition, FXWO and FXRW still have one significant difference. If FXWO is denominated in dollars (and can be traded both in rubles and in dollars), then FXRW has a ruble hedge and is traded only in rubles. The purpose of the ruble hedge is to protect against currency fluctuations. Fxrw

By the way, FXWO and FXRW funds can be combined within the same investment portfolio. We wrote about the effectiveness of this strategy

If you do decide to build your portfolio by hand, then the first market to look out for is the United States. It occupies 60% of the world capitalization, so it is simply unwise to ignore it. The FinEx ETF line includes four funds for US stocks —

Inside FXUS there are more than 550 companies of all industries, weighted by capitalization. The Solactive GBS United States Large & Mid Cap Index NTR, followed by FXUS, is similar in filling to the S&P 500, but has a number of differences. The Solactive methodology is completely autonomous, has clear rules, criteria and does not require human intervention (rule-based), therefore the influence of subjective factors (for example, such as unreasonable decisions of the index committee to include or exclude companies) in this index is largely excluded. Differences in methodology lead to different investment results. So, for 2020, the FinEx USA UCITS ETF (FXUS), which tracks the Solactive index, brought its investors a dollar return of 19.6%, and the Vanguard S&P 500 UCITS ETF — only 17.6%.

With a sufficient level of risk tolerance and a long time horizon, an investor can increase the share of the IT sector in his portfolio using FXIT or FXIM. Both funds track the dynamics of companies in the US IT sector and differ only in the cost of one share: as of October 28, 2021, an FXIT share costs RUB 11,255, and FXIM — RUB 93.78.

The fresh FXRE fund also covers the American stock market, but only that part of it that

The advantages of FXRE include:

The next largest asset class is developed markets ex-US (DM ex-US). Developed markets can offer a number of benefits: undervalued companies (low CAPE), reduced portfolio risk, high dividend yield. Read more about international promotions in our

When drawing up an investment portfolio and observing country and currency diversification, it is useful to pay attention to the fund

Despite the presence of German companies in FXDM, the fund only covers 70% of the capitalization of the German stock market. For a more concentrated bet on the advanced development of the German economy, you can use the fund

FXDM performed well compared to its classmates in the ex-US DM segment. Since launch, FXDM has outperformed US ETFs on FTSE indices: from April to November 2021, FXDM gained 8.2% in value, while Vanguard and Invesco funds only 5.7% and 3.9%, respectively.

Comparison of ETF dynamics in developed markets without the US

Here are the main

Today, there are two funds in the FinEx line that belong to this asset class — FXCN and FXRL.

China is the main driver of emerging economies. The capitalization of only one Chinese stock market occupies about 50% of the capitalization of all developing countries. FXCN Fund covers 85% of the Chinese economy and invests in 230 companies. One of the features of the fund is low infrastructural risk due to

Comparison of ETF dynamics on the Chinese stock market

For investors who want to see stocks of domestic companies in their portfolio,

Kazakhstan is the largest economy in Central Asia. According to the classification of the International Monetary Fund, the republics of the former Soviet Union in Central Asia (Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenistan) are neither developed nor emerging markets. They are seen as «transitional» or «threshold» countries.

The index of the Kazakhstan Stock Exchange KASE, followed by the FXKZ fund, despite a small number of components, is diversified in the sectoral sense and represents the main sectors of the country’s economy:

Another fund that falls outside the traditional classification, but at the same time has good diversification by country, is FXES. It is a thematic foundation for the video games and esports industries. It includes shares of companies in both developed and developing countries (68/32 ratio). At the end of October 2021, the fund has 26 companies from 8 countries.

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The information in the text does not constitute an individual investment recommendation. An investor should form a portfolio based on their own goals, time frame, risk attitude and age. You can use

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