Hello! I'm trying to figure some things out about geographic diversification and getting exposure to global equity, and a friend pointed me to the "gurus" on this forum! Kind of a long post though, so if you don't want to read it, please feel free to move on!
Here's the facts:
I'm 34, US citizen/resident, with some tax deferred/exempt accounts managed at Fidelity. Right now my investments are nearly 100% domestic, except for 5% in an emerging markets bond fund. I've decided that I want to put somewhere between $6000 and $9000 (about 15% of my portfolio) into foreign equity exposure. My accounts can access a large number of Fidelity funds, no-fee "FundsNetwork" funds, and all the ETF's.
I was originally thinking I would put about half of this amount into developed markets and half into emerging/developing markets. I quickly discarded the idea of trying to be a foreign stock picker via ADRs: I don't believe I'm any good at that. My next idea was Fidelity's International index fund - but, unlike nearly all of their other products, it has a $10K minimum investment. That's just too much of my portfolio for my comfort, and as near as I can tell it mostly invests in developed markets.
So I started looking around. I tend to think indexes are a good idea, so I looked at the iShares ETFs. One idea I had was to put half in EFA and half in EEM. EFA reflects the MSCI EAFE (Europe, Asia, Far East) index, and EEM reflects the MSCI Emerging markets fund.
But I found it very difficult to determine the cost of holding positions in these ETFs - i.e., by how much do they underperform their index? And as I looked around, I realized there were a bunch of things I didn't understand about foreign equity. For instance, I understand that some funds are currency-hedged. I'm confused - how is that possible when it's an index of foreign equities? I also don't really want a currency hedge - part of the attractiveness of foreign equity for me is that it's a hedge against inflation/globally falling dollar.
So after I got done thinking about it I have a bunch of questions:
Currency hedge or not?
What are the costs associated with a typical ETF, besides the brokerage commission I'm going to have to pay to buy one? I keep hearing about the MER - what's that stand for?
ETFs have less stringent disclosure than mutual funds, and according to their prospectus don't always have to trade at parity with their NAV - is this something I should worry about? The idea of someone arbitraging my investment makes me nervous.
If my goals above (get 50/50 exposure to developed and developing foreign equity in a 15% fraction of the portfolio) were your goals, what would you do? If those aren't your goals, why not? What did you do instead?
Are the MSCI indexes I picked out good indexes? Most of what you can find on indexes in the media relates to the DJIA and S+P 500. These global indexes aren't written about very much and it's not clear to me that things that are true about the S+P 500 indexes are clearly true about global indexes. Do the foreign indexes change a lot? (How stable can an "emerging markets index" be, after all?) Should I be looking instead at actively managed international funds? Some of them have beat the pants off the indices (namely the Artisan International Value fund, and the Janus Overseas; those are just two that I happen to have read the prospectuses of, I am not trying to tout them.)
What else should I know about this topic that I failed to ask about?
Thanks in advance for your time and your wisdom!
Here's the facts:
I'm 34, US citizen/resident, with some tax deferred/exempt accounts managed at Fidelity. Right now my investments are nearly 100% domestic, except for 5% in an emerging markets bond fund. I've decided that I want to put somewhere between $6000 and $9000 (about 15% of my portfolio) into foreign equity exposure. My accounts can access a large number of Fidelity funds, no-fee "FundsNetwork" funds, and all the ETF's.
I was originally thinking I would put about half of this amount into developed markets and half into emerging/developing markets. I quickly discarded the idea of trying to be a foreign stock picker via ADRs: I don't believe I'm any good at that. My next idea was Fidelity's International index fund - but, unlike nearly all of their other products, it has a $10K minimum investment. That's just too much of my portfolio for my comfort, and as near as I can tell it mostly invests in developed markets.
So I started looking around. I tend to think indexes are a good idea, so I looked at the iShares ETFs. One idea I had was to put half in EFA and half in EEM. EFA reflects the MSCI EAFE (Europe, Asia, Far East) index, and EEM reflects the MSCI Emerging markets fund.
But I found it very difficult to determine the cost of holding positions in these ETFs - i.e., by how much do they underperform their index? And as I looked around, I realized there were a bunch of things I didn't understand about foreign equity. For instance, I understand that some funds are currency-hedged. I'm confused - how is that possible when it's an index of foreign equities? I also don't really want a currency hedge - part of the attractiveness of foreign equity for me is that it's a hedge against inflation/globally falling dollar.
So after I got done thinking about it I have a bunch of questions:
Currency hedge or not?
What are the costs associated with a typical ETF, besides the brokerage commission I'm going to have to pay to buy one? I keep hearing about the MER - what's that stand for?
ETFs have less stringent disclosure than mutual funds, and according to their prospectus don't always have to trade at parity with their NAV - is this something I should worry about? The idea of someone arbitraging my investment makes me nervous.
If my goals above (get 50/50 exposure to developed and developing foreign equity in a 15% fraction of the portfolio) were your goals, what would you do? If those aren't your goals, why not? What did you do instead?
Are the MSCI indexes I picked out good indexes? Most of what you can find on indexes in the media relates to the DJIA and S+P 500. These global indexes aren't written about very much and it's not clear to me that things that are true about the S+P 500 indexes are clearly true about global indexes. Do the foreign indexes change a lot? (How stable can an "emerging markets index" be, after all?) Should I be looking instead at actively managed international funds? Some of them have beat the pants off the indices (namely the Artisan International Value fund, and the Janus Overseas; those are just two that I happen to have read the prospectuses of, I am not trying to tout them.)
What else should I know about this topic that I failed to ask about?
Thanks in advance for your time and your wisdom!