Concentration Risk in Country ETFs

Although single country exchange traded funds are an inexpensive way to gain exposure to a hot economy, they may have a large part of the portfolio invested in only one or two companies or sectors.

According to Rob Curran, several country ETFs fit this description including the iShares MSCI South Korea Index (EWY) which has 17% of the fund invested in a single stock — Samsung Electronics.

Other country ETFs with sizable single stock exposure include the iShares Mexico Investable Market Index ETF (EWW) with 27% of assets in America Movil and the iShares MSCI Spain Index (EWP) with 25% in Banco Santander.

To reduce concentration risk, Curran points to regional ETFs such as the iShares MSCI All-Country Asia Ex-Japan Index (AAXJ) which has nearly $2 billion in assets and exposure to its largest holding, Samsung Electronics, is only 4% of the portfolio.

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