Bolstering Int'l Exposure With Country ETFs

A look at how key country ETFs stack up against their peers.

Reviewed by: Todd Rosenbluth
Edited by: Todd Rosenbluth

Key Takeaways



Fundamental Context

International equity ETFs have returned to favor, gathering $116 billion of inflows year-to-date through May, according to CFRA. While broad and regional market products such as the iShares Core MSCI Emerging Markets ETF (IEMG) and Vanguard FTSE Developed Markets ETF (VEA) gathered the lion’s share with $63 billion, investors also tactically added $3.9 billion to single-country focused ETFs. China-focused products have led the charge, but there has also been demand for exposure to India, Japan, and the U.K. Yet, there are notable differences in the costs and exposure provided by key ETFs that have driven distinct performance in 2021.

The five largest China ETFs gathered $1.9 billion of new money to start 2021. Even though China represents approximately one-third of IEMG and other diversified emerging market ETF assets, investors have sought to augment their exposure. FXI gathered $612 million of net inflows in the first five months of the year, slightly more than the $566 million for its sibling, the iShares MSCI China ETF (MCHI), but double the flows for ASHR. 



Yet ASHR’s 5.1% total return year-to-date through May was more than 400 basis points stronger than the pair of iShares offerings. The lone non-market-cap weighted product among the top five is the $1.0 billion WisdomTree China ex-State-Owned Enterprises Fund (CXSE), which has less exposure to financials and more exposure to communications services than FXI and MCHI due to its governance filter. CXSE is also the cheapest of the quintet, with a modest 0.32% expense ratio. Investors have largely ignored the $1.9 billion SPDR S&P China ETF (GXC), with the fund gathering only $13 million. 



India ETFs

The iShares MSCI India ETF (INDA) is the largest and most popular ETF focused on India but not the best performer in 2021. INDA holds approximately 100 large- and mid-cap companies domiciled in India, with hefty stakes in Infosys and Reliance Industries. The $5.6 billion single-country ETF added approximately $400 million of new money, likely as some investors sought to bolster the 11% stake the country had in IEMG. Yet, investors would have been better off using the WisdomTree India Earnings Fund (EPI) or the iShares MSCI India Small-Cap ETF (SMIN). SMIN climbed 24% in the first five months, more than doubling INDA’s 10% gain, while EPI rose a strong 16%. Despite the performance, SMIN gathered a mere $21 million of net inflows, while EPI surprisingly gathered no new money.



Relative to INDA, the small-cap focused SMIN and earnings focused EPI had larger stakes in industrials and materials companies and smaller positions in energy. SMIN also has less exposure to financials than its peers. As India’s Covid-19 vaccine rollout accelerates and businesses reopen, the domestically focused SMIN and higher quality EPI benefitted more than INDA in the first five months of 2021.  



Japan ETFs

EWJ has lost share to lower-cost BBJP, but there is an even cheaper alternative. Year-to-date through May, the $12 billion EWJ saw $1.4 billion of net outflows, likely with some of this money shifting to BBJP. The JPMorgan offering gathered $2.1 billion of new money to start 2021, pushing its asset base to $8.5 billion. Both ETFs are market-cap weighted, with BBJP’s 35 basis point outperformance aided by its 0.19% expense ratio, which is 32 basis points less than EWJ. Nonetheless, in 2021 investors have ignored the approximately $600 million cap-weighted FLJP despite the fund charging an even lower 0.09% fee that contributed favorably to its relative performance. Furthermore, we think FLJP could easily complement VEA, as the Vanguard ETF similarly tracks a FTSE benchmark and has a 21% weighting in Japan.



Few investors have been rewarded for taking a value-oriented approach to Japan. In March 2019, the iShares MSCI Japan Value ETF (EWJV) launched. It ended May 2021 with just $40 million and had $23 million of new money flow in this year. Through its value approach, EWJV has more exposure than EWJ to financials and real estate and less exposure to health care and information technology. In addition, the fund has a heftier stake in consumer discretionary company Toyota Motor. EWJV rose 9.3% in the first five months of 2021, outperforming the more broadly diversified EWJ by more than 750 basis points.




Despite Brexit, investors have added to U.K. ETFs. The iShares MSCI United Kingdom ETF (EWU) is a $3.8 billion offering that has received approximately $480 million of new money to start 2021, but investors have also added to a few other ETF country peers. For example, the Franklin FTSE United Kingdom ETF (FLGB) added nearly $90 million and ended May with $235 million. EWU and FLGB generated identical 15.4% year-to-date returns through May, but FLGB charges a lower expense ratio (0.09% vs. 0.51%). 



However, the $30 million First Trust United Kingdom Alphadex Fund (FKU) has generated a stronger return than EWU and FLGB, rising 22% in the first five months. FKU is constructed using a combination of growth and value metrics, which has resulted in its higher exposure to consumer discretionary and industrials securities than EWU and less exposure to consumer staples and health care.



Investors are increasingly comfortable using single-country ETFs to tilt portfolios toward some of the largest global economies. While asset size is often used in selection criteria, we encourage investors to look at the underlying exposure and fund costs, as these factors will help drive future performance. CFRA recently expanded its ETF data set to include Europe and key Asian markets.


Lucas Eckrich contributed to this report.


All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information and disclosures, please refer to CFRA's Legal Notice at

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Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence’s equity and fund business in October 2016. Follow him at @ToddCFRA.