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There are hundreds of foreign-stock funds. This sortable list will speed you to the best deals.
It’s high time for foreign stocks to do some catching up
Forbes
Easiest way to boost your investment in foreign companies: Use a fund.
Most cost-effective way to get that portfolio: Stick to index funds.
This guide to international funds presents a sortable table of 91 Best Buys. They all have expense ratios no higher than 0.3%, or $300 a year per $100,000 invested. Some of them are a lot cheaper than that, and one, the loss leader from Fidelity, is free of fees.
First question to ask: What territory do you want to cover? If you are buying only one foreign fund, the choice should probably be a diversified fund that covers most of the planet other than the U.S. Sort on the first column (by clicking on the column header) and look for diversified funds.
The geographically diverse funds are marked D. Other options: R for regional funds (for example, with just European or just Pacific-area stocks), E for emerging market funds (with a heavy dose of India and China) and S for the handful of single-country funds cheap enough to appear here.
Next question: Do you care about dividends? Young savers don’t; retirees do. Overseas markets are great places to find fat yields. Sort on the yield column. You’ll find 18 cost-effective funds with yields at least double the 1.3% you get on the U.S. stock market.
Young or old, you need to contemplate what dividends get you and what they don’t. They generate cash. They don’t generate a correspondingly higher total return. That is, whatever you gain in current yield you can expect to give up, sooner or later, in appreciation. This is true whether you are choosing between the low-yielding U.S. market and the higher-yielding European markets, or between low-dividend tech stocks like Tesla and high-dividend utility stocks like AT&T.
The world has to work this way. If it didn’t, we could all get rich by going long a high-yield portfolio and shorting a low-yield portfolio.
Third question: Do you want a mutual fund (one that sells and redeems its own shares) or an exchange-traded fund (which uses market makers to handle the in-and-out traffic)? If you are investing via a taxable account, the ETF is almost always the better option because it is not obliged, as mutual funds are, to turn realized capital gains into taxable distributions.
If you are investing via a tax-deferred account, such as an IRA or 401(k), taxes are immaterial. In that case, the choice comes down to convenience. Either the one or the other style of fund may be hard to access in your retirement plan. Use whichever is easiest.
There’s one exception to the general rule that ETFs and mutual funds are separate entities: At Vanguard, the two styles of fund are often just different slices of a single portfolio. Among our 91 Best Buys are 16 Vanguard entries that amount to two ways to buy each of eight portfolios.
Sometimes the Vanguard mutual has a slightly different name from its sister ETF, sometimes it doesn’t. Sometimes the ETF has a slightly lower expense ratio. But there isn’t a lot of difference. There’s a sharing of tax attributes, too, so that at Vanguard selecting the ETF doesn’t lower your capital gain exposure.
Fourth question: What does it cost you to be in the fund? A product doesn’t even show up here unless it’s fairly economical. Even so, little costs add up. Over a 30-year span a 0.3% annual fee leaves you 8.6% poorer. Keep an eye on those costs. If you are a Fidelity customer you should have a compelling reason to select any fund other than the freebie, Fidelity Zero International.
Three other data points to look at: The number of stocks held, if degree of diversification is important to you; the average market capitalization of the portfolio positions, if you want to focus on smaller or larger companies, and the size of the fund. Larger funds are likely to have more trading volume and thus less of a trading cost. But any product with at least $1 billion of assets will probably have a tolerably narrow bid/ask spread.
