The Pacific region merits a chunk of any balanced portfolio of ETFs. The nations of the Pacific have evidenced a good comeback in recent years.
With the rapid growth of China as the world’s apparent soon-to-be largest consumer, surrounding nations may bask in economic glory. Australia, in particular, has benefited greatly from the recent run-up in prices for natural resources caused in part by Chinese demand.
And Japan still leads the world in labor productivity, despite some obvious economic challenges (such as a serious real-estate collapse and a level of debt greater than that of any other major nation).
On the other hand, the threat posed by North Korea, the tensions between China and Taiwan, and the presence of nuclear weapons in unfriendly neighbors India and Pakistan loom like black clouds over the region.
Despite these black clouds, the Pacific region is a good place to invest.
Vanguard Pacific ETF (VPL)
Indexed to: MSCI Pacific Index, which follows roughly 500 companies in five Pacific region nations
Expense ratio: 0.14 percent
Top five country holdings: Japan, Australia, Hong Kong, Singapore, New Zealand
The cost can’t be beat. And 500 companies certainly allows for good diversification. As with all Vanguard funds, tax efficiency is tops. Japan — the world’s second-largest stock market — makes up 64 percent of this fund, considerably more than the BLDRS Asia 50. If you hold this ETF at Vanguard, you’ll also pay no commission to buy or sell.
BLDRS Asia 50 ADR (ADRA)
Indexed to: The Bank of New York Mellon Asia 50 ADR Index, a market-weighted basket of 50 Asian market-based ADRs representing a total of 8 countries. (Japan accounts for 44 percent of the pie.)
Expense ratio: 0.30 percent
Top five country holdings: Japan, Australia, China, Taiwan, India
The cost is higher than Vanguard’s Pacific ETF, and you’re tapping into fewer companies. Still, 50 companies isn’t bad diversification. This fund also gives a bit more weight to non-Japan stock markets, which may be a good thing — although note that some of the countries represented are clearly emerging market nations.
If you use ADRA, you’ll want to factor that fact into your overall portfolio analysis. All in all, ADRA is a good investment.
iShares MSCI Japan (EWJ)
Indexed to: MSCI Japan Index, representing approximately 340 of Japan’s largest companies
Expense ratio: 0.54 percent
Top five country holdings: Just Japan here
iShares doesn’t offer a Pacific region ETF. If you want the equivalent of either the BLDRS or Vanguard Pacific ETFs, you need to buy at least two iShares ETFs: the MSCI Japan and the MSCI Pacific ex-Japan (EPP). That’s a doable option for larger portfolios, but with a cost ratio several times greater than Vanguard’s.