Top International ETFs On Fidelity: A Detailed Guide

by Alex Braham 53 views

Investing in international markets can significantly diversify your portfolio and potentially enhance returns. Fidelity offers a wide range of international ETFs, each with its own unique investment strategy and risk profile. For investors looking to expand their horizons beyond domestic stocks, understanding the best international ETF options available on Fidelity is crucial. This guide will walk you through some of the top choices, helping you make informed decisions based on your investment goals and risk tolerance. Let's dive in and explore the world of international investing with Fidelity!

Understanding International ETFs

Before we delve into specific ETFs, let's clarify what international ETFs are and why they might be a valuable addition to your investment strategy. International ETFs (Exchange Traded Funds) are investment funds that focus on stocks, bonds, or other assets located outside of your home country. For U.S. investors, these ETFs provide exposure to companies and economies around the globe. This diversification can help reduce the overall risk of your portfolio because different countries' markets often react differently to economic events. For example, while the U.S. market might be experiencing a downturn, other markets in Asia or Europe could be thriving.

Investing internationally offers several potential benefits. Firstly, it allows you to tap into growth opportunities in emerging markets, which often have higher growth rates than developed economies. Secondly, it provides a hedge against domestic economic slowdowns. If the U.S. economy is underperforming, your international investments could help offset those losses. Thirdly, it enables you to diversify your portfolio across different currencies, which can further reduce risk. However, it's essential to remember that international investing also comes with its own set of risks, including currency fluctuations, political instability, and different regulatory environments.

When choosing an international ETF, consider factors such as the fund's expense ratio, its underlying index, its geographical focus, and its historical performance. The expense ratio is the annual fee charged by the ETF to manage the fund. A lower expense ratio means more of your investment returns go directly to you. The underlying index determines which companies or assets the ETF invests in. Some ETFs focus on broad market indexes, while others target specific sectors or regions. The geographical focus is crucial because it determines which countries you'll be exposed to. Finally, historical performance can provide insights into how the ETF has performed in the past, although it's not necessarily indicative of future results.

Top International ETFs on Fidelity

Now, let's explore some of the best international ETFs available on Fidelity's platform. These ETFs have been selected based on factors such as their expense ratios, historical performance, diversification, and investment focus.

1. iShares MSCI EAFE ETF (EFA)

The iShares MSCI EAFE ETF (EFA) is one of the most popular and widely traded international ETFs. It seeks to track the investment results of the MSCI EAFE Index, which represents developed markets outside of the U.S. and Canada. This ETF provides broad exposure to a wide range of companies across Europe, Australasia, and the Far East. Its top holdings typically include well-known multinational corporations like Nestle, Roche, and Toyota. The EFA ETF is a great option for investors looking for diversified exposure to developed international markets without focusing on emerging economies.

One of the key advantages of the EFA ETF is its low expense ratio, which makes it a cost-effective way to invest in international markets. The fund also has a long track record, providing investors with a good sense of its historical performance. Additionally, its high trading volume ensures that it is easy to buy and sell shares at a fair price. However, it's important to note that the EFA ETF does not include exposure to emerging markets, so if you're looking for exposure to those economies, you'll need to consider a different ETF.

The iShares MSCI EAFE ETF can be a cornerstone of an internationally diversified portfolio, particularly for those who are more comfortable with the relative stability of developed markets. Its diversification across numerous countries and sectors within those countries offers a buffer against specific regional or industry downturns. However, investors should also consider the potential impact of currency fluctuations, as the fund's returns can be affected by changes in the value of the U.S. dollar relative to other currencies.

2. Vanguard FTSE Developed Markets ETF (VEA)

The Vanguard FTSE Developed Markets ETF (VEA) is another excellent choice for investors seeking exposure to developed international markets. This ETF aims to track the performance of the FTSE Developed All Cap ex US Index, which includes large, mid, and small-cap stocks in developed countries outside of the U.S. The VEA ETF offers similar diversification to the EFA ETF but with a slightly different underlying index and a focus on capturing a broader range of market capitalizations. This can potentially lead to slightly different performance results over time.

Like other Vanguard ETFs, the VEA ETF is known for its very low expense ratio, making it one of the most cost-effective ways to invest in developed international markets. The fund's large asset base and high trading volume also ensure liquidity and tight bid-ask spreads. The VEA ETF is a solid choice for investors who prioritize low costs and broad market exposure. This ETF holds thousands of stocks from various developed nations, offering a wide net of potential growth and stability. Its comprehensive approach makes it suitable for investors looking to mirror the overall performance of developed markets outside the U.S.

Choosing between VEA and EFA often comes down to personal preference regarding the underlying index and slight differences in holdings. Both are solid options, but VEA's inclusion of small-cap stocks may appeal to investors looking for more comprehensive market representation. Keep in mind, though, that small-cap stocks can also introduce additional volatility.

3. iShares Core MSCI Total International Stock ETF (IXUS)

For investors seeking a more comprehensive approach to international investing, the iShares Core MSCI Total International Stock ETF (IXUS) is a great option. This ETF tracks the MSCI ACWI ex USA IMI Index, which includes both developed and emerging markets outside of the U.S. The IXUS ETF provides a one-stop solution for investors who want exposure to the entire international market without having to invest in separate developed and emerging market ETFs.

The IXUS ETF offers broad diversification across thousands of stocks in both developed and emerging economies. Its top holdings include companies from countries such as Japan, China, South Korea, and Taiwan. The ETF's expense ratio is also relatively low, making it a cost-effective option for investors looking for comprehensive international exposure. The inclusion of emerging markets adds a layer of growth potential, but also introduces higher volatility compared to ETFs that focus solely on developed markets. This ETF simplifies international investing by combining exposure to both established and developing economies in a single fund.

Investors should be aware that the performance of IXUS can be more volatile than ETFs focused solely on developed markets due to the higher risks associated with emerging economies. However, the potential for higher returns also exists. This ETF is particularly appealing to investors who want a simplified approach to international investing and are comfortable with the increased volatility that comes with emerging market exposure.

4. Schwab International Equity ETF (SCHF)

The Schwab International Equity ETF (SCHF) is another low-cost option for investors seeking exposure to developed international markets. This ETF tracks the FTSE Developed ex US Index, which includes large and mid-cap stocks in developed countries outside of the U.S. The SCHF ETF is known for its very low expense ratio, making it an attractive choice for cost-conscious investors. Its holdings are diverse, spanning various sectors and countries, providing a balanced approach to international investing.

Like other Schwab ETFs, the SCHF ETF is designed to be a core holding in a diversified portfolio. Its low cost and broad market exposure make it a suitable choice for investors who want to keep their investment expenses to a minimum. The SCHF ETF offers a solid alternative to VEA and EFA, with a similar focus on developed markets but with a slightly different weighting methodology. This can result in slightly different performance over time, but the overall risk and return profile are generally comparable.

For investors who already use Schwab for their brokerage accounts, SCHF can be a particularly convenient option. Its integration with Schwab's platform makes it easy to buy, sell, and manage your investment. Additionally, Schwab's commitment to low costs aligns well with the goals of many long-term investors. This ETF is a straightforward and cost-effective way to gain exposure to developed international markets.

5. SPDR Portfolio Developed World ex-US ETF (SPDW)

The SPDR Portfolio Developed World ex-US ETF (SPDW) is a cost-effective option for investors looking to invest in developed international markets. This ETF tracks the S&P Developed Ex-U.S. BMI Index, providing exposure to a broad range of companies in developed countries outside the United States. With a focus on diversification and low cost, SPDW is an attractive choice for investors aiming to build a well-rounded international portfolio. Its holdings include companies from various sectors and countries, offering a balanced approach to international investing.

One of the main advantages of SPDW is its low expense ratio, which makes it a competitive option in the crowded field of international ETFs. The fund's diversification helps mitigate risk by spreading investments across multiple economies and industries. SPDW is particularly suitable for investors who prioritize low costs and broad market exposure. The ETF offers a simple and efficient way to gain exposure to developed international markets without the complexities of investing in individual stocks. Its straightforward approach and low fees make it a popular choice for both novice and experienced investors.

Key Considerations When Choosing International ETFs

Choosing the right international ETF involves careful consideration of several factors. Here are some key aspects to keep in mind:

  • Expense Ratio: The expense ratio is the annual fee charged by the ETF to manage the fund. Lower expense ratios mean more of your investment returns go directly to you. Pay close attention to this, as it can significantly impact your long-term returns.
  • Underlying Index: The underlying index determines which companies or assets the ETF invests in. Understand the index's methodology and its exposure to different countries and sectors.
  • Geographical Focus: Consider which regions and countries the ETF focuses on. Do you want exposure to developed markets, emerging markets, or a combination of both? Your choice should align with your investment goals and risk tolerance.
  • Historical Performance: While past performance is not indicative of future results, it can provide insights into how the ETF has performed in different market conditions. Analyze the ETF's performance over various time periods.
  • Liquidity: Liquidity refers to how easily you can buy and sell shares of the ETF. High trading volumes and tight bid-ask spreads indicate good liquidity.
  • Currency Risk: International ETFs are subject to currency risk, which is the risk that changes in exchange rates will negatively impact your returns. Consider how currency fluctuations might affect your investment.
  • Tax Implications: Be aware of the tax implications of investing in international ETFs. Depending on your country of residence, you may be subject to different tax rules and regulations.

Conclusion

Investing in international ETFs through Fidelity can be a smart way to diversify your portfolio and potentially enhance returns. By understanding the different ETF options available and carefully considering your investment goals and risk tolerance, you can make informed decisions that align with your financial objectives. Whether you choose a broad market ETF like IXUS or a developed market-focused ETF like EFA or VEA, remember to prioritize low costs, diversification, and a long-term investment horizon. With the right approach, international ETFs can be a valuable addition to your investment strategy, helping you achieve your financial goals and navigate the global investment landscape with confidence. So, explore your options, do your research, and start building a diversified international portfolio today! Remember, the best investment is an informed investment.