This post is building off a previous analysis that showed that it may be beneficial to include a few different countries’ major companies’ stocks in your investment portfolio.

An exchange-traded fund or ETF allows you purchase a small part of many companies.  Two common ones are VTI, which is Vanguard Total Stock Market and VOO which is Vanguard S&P 500 ETFs.  They have low expense ratios of 0.03%.  Compare that to the actively managed funds which can have expense ratios greater than 1%.  The lower the expense ratio, the more money goes home with you.

There is one item that should be noted about investing in foreign companies. We also need to keep in mind the currency which the company uses and how strong it is in relation to the USD.  For example, the company’s share price may increase, but if the USD gets stronger during this period, it will eat away at your gains.

There are two great websites that let you search ETF’s by your given criteria:

http://www.etf.com/

etfdb.com and their Country Exposure Tool

Browsing these websites, we can see a ETFs that have exposure to the countries. A few countries (Burma, Libya, Romania, Ethiopia, and Iran) that I ranked highly did not have any exposure on the etfdb.com exposure tool. Other countries (Macau and Bangladesh) had very limited exposure in the ETFs. Other countries such as China, Philippines, India, Hong Kong, and Turkey had ETFs with a high amount of exposure. I did a few permutations with different weighting and added South Korea to the list.  A table that shows the ETF, expense ratio, and exposure to each country is shown below.

As we can see, there are quite a few ETFs that have almost 100% exposure for individual countries, but these should be used sparingly because their 0.59% expense ratios. A combination of FLAX, TUR, and FM would get us a mixture that is pretty close to the countries that are the top of the list.

Let’s dive into FLAX for example; you should do this with the other ETFs as well. According to ETF.com, FLAX is mostly technology (34.91%) and financials (29.16%). The top holdings are Alibaba Group Holding (7.69%), Tencent Holdings (6.50%), and Taiwan Semiconductor (5.10%). We should to an assessment of the major companies in each ETF; I will break down Alibaba. You should look at the past few years of annual reports and a few quarterly reports. Looking at the 2019 annual report, the company settled a lawsuit in the USA, which left it in an unfavorable position. However, the company reports a 51% year over year increase in revenue and 242% increase in earnings per share. The company does not report carrying debt. It has has many years of growing revenues.

This is just on example of and ETF you can buy. You can select your own to meet your investment goals.

This article is for informational purposes only. It does not serve as investment advice or credit analysis. It should not be used as a recommendation to purchase any investments.

Disclaimer: I/we have positions in FLAX and Alibaba.

Introduction

There are many differing opinions on if you should include foreign assets in your investment portfolio. Some say those in the USA should only have USA-based stocks and bonds. Others say you should have different percentages of foreign stocks and bonds. This post seeks to determine if there are other countries or regions that one should consider investment attention to.

Methods

I downloaded the following data from the CIA World Factbook for the word’s countries:

• Population
• Gross Domestic Product (GDP) at Purchasing Power Parity
• GDP per Capita
• Public debt as a % of GDP, which is all the debt the government owes
• External debt ($), which is the debt the country owes to a foreign country
• Exports and imports
• Latest available GDP growth rate (%)
• Industrial production growth rate (%)
• Government Reserves ($), which is of how much foreign exchange or gold the county has available to pay its debts

A total of 189 of the world’s countries were assessed.

For the analysis, the following transformations of the CIA World Factbook data were made:

• Public debt as a % of GDP was multiplied by the per capita GDP to approximate the public debt per capita
• External debt was divided by the population to approximate the External Debt per capita
• The trade surplus or deficit was determined by subtracting the imports from the exports. Then this value was divided by the population to determine the approximate trade surplus (positive) or deficit (negative) per capita
• The government reserves were divided by the population to approximate the government reserve amount per capita

Each one of the countries was given one point (scored) for each country that is surpassed. For example, the country with the largest GDP (China) was given a score of 189. The country with the smallest GDP (Anguilla) was given a score of 1. The countries with the least amount of public debt per capita (Macau and Timor-Leste) were given a score of 188.5 while the country with the largest public debt per capita (Singapore) was given a score of 1. Ties were given the average score.

Once scoring was complete, the score for each category was multiplied by a weighting factor and summed to determine the overall weighted score. Then each country was ranked by score.  The country with the greatest score was given a rank of 1. The weighting system is subjective by nature but was intended to give more importance to categories which would cause a country’s economy to excel or falter in the future.

Results

Based on the weighting system, the countries are ranked as follows (lower ranking is better):

Additionally, the countries were also broken down into seven global regions. The lower the average rank, the better.

Conclusions

Broken down by region, we can see that the economic situation of the North America is still quite good; it is the highest ranked region. The United States and Canada are ranked 79^th and 41^st, respectively. However, the USA is 182^nd of 189 for public debt per capita and 169^th for external debt. It is 131^st in GDP growth and tied for 116^th for government reserves.  These issues could create long term problems for the US Economy.

Thus, it appears that having foreign stocks is worthy of a look in your investment portfolio. If you can focus on countries that are positioned the best economically, your risk can be mitigated with problems underlying the United States economy.

Just because a country is ranked well here does not mean all of the publicly traded corporations that you can invest in will have good performance in your portfolio. The ranking here does not release you of the need to vet the company, country, or region before investing in it.

A look at ways to invest in these countries or regions will follow in a later post.

This article is for informational purposes only. It does not serve as investment advice or credit analysis. It should not be used as a recommendation to purchase any investments.

Source:

https://www.cia.gov/library/publications/resources/the-world-factbook/docs/rankorderguide.html