International exchange traded funds
Judging by the rapid move of fund managers to launch exchange traded funds in Europe, there is a widespread belief that the international markets will be the next to take part in the exchange traded funds boom. Before there were any exchange traded funds trading in non-United States markets, exchange traded funds radically expanded the opportunities for United States investors to invest in international markets. There have been many World Equity Benchmark Shares single-country exchange traded funds. Now increasingly, the investors of other investors of other countries also have the opportunity to invest in exchange traded funds that trade on their own stock exchanges as well.
More importantly, investors are not only given access to other markets, but at generally much lower expense than with the relatively limited array of existing traditional international mutual funds. Because of the variety of obstacles, including higher trading costs, wider spreads and taxes and regulatory requirements, international investing is generally expensive and traditional mutual fund have reflected this with their expense ratios. The most expensive international exchange traded funds that trade in the United States still have total expense ratios below one percent annually. Only a handful of international mutual funds have expense ratios this low, though some traditional index funds, particularly those offered by Vanguard, have very competitive expense ratios on their international funds, indeed often lower than the equivalent exchange traded funds.
There are exchange traded funds for countries, exchange traded funds for regions and exchange traded funds for top global companies regardless of their country or region. There are also international exchange traded funds specializing in technology and other sectors. Though you might be a gambler, when it comes to international exchange traded funds, there are special risks and questions that require careful consideration before you think of moving your money.
A Brief history of international exchange traded funds:
As the first United States exchange traded funds, the spider, was being born on the American Stock Exchange in 1993, Morgan Stanley was experimenting with the concept in Europe. Taking advantage of looser rules for securities in Luxembourg, Morgan Stanley created and listed on the Luxemburg exchange what were called Optimized Portfolios As Listed Securities. The Optimized Portfolios As Listed Securities tracked a range of prominent indexes, including the Standard and Poor's 500 and others. They are still a major force in the international exchange traded funds market.
Some traditional international mutual funds are Optimized Portfolios As Listed Securities as part of their holdings. But they are not sold directly to most investors and are marketed instead to institutional investors in countries where regulators allow the offerings. Optimized Portfolios As Listed Securities are securities and not funds. We just add up the bids the offers on the underlying basket of shares. So each Optimized Portfolios As Listed Securities is related to an optimized or fully replicated basket. The prices are updated every 15 seconds to represent the underlying bid or offer spread.
After experimenting with new investment management techniques using the Optimized Portfolios As Listed Securities, Morgan Stanley and Barclays Global Investors teamed up to create World Equity Benchmark Shares, that could be sold to retail investors in the United States and listed on the American Stock Exchange. There were 17 initial funds, a number that remained constant until the great expansion of exchange traded funds. Another eight international exchange traded funds began to trading on American Stock Exchange and fund companies began expanding their offerings on international exchanges more rapidly, as well. The original World Equity Benchmark Shares were mostly for developed countries, with 14 of the original 17 tracking national markets represented in Morgan Stanley Capital's Europe or Australasia or Far East Index. Regional index shares followed and there were plans for exchanged traded funds tracking the Europe or Australasia or Far East and cross border international sector indexes, as well.
Exactly one week before the release of the World Equity Benchmark Shares launched a line of very similar open end exchange traded funds that were known as Country Baskets. Since their ignominious departure from the scene, they have been known to many exchange traded fund insiders as the "country caskets". There were nine Country Baskets covering Financial Times indexes for nine countries, including Australia, France, Germany, Hong Kong, Italy, Japan, and the United Kingdom and unlike the World Equity Benchmark Shares, the indexes for both the United States and South Africa. A different product than the World Equity Benchmarks, the Country Baskets fully replicated the relevant indexes because the Country Baskets covering Financial Times indexes for those markets already fully registered investment company compliant. Registered investment compliant rules stipulate that a fund can hold no more than 25 percent in one stock or to have more than 50 percent invested in stocks with a weighting of greater than 5 percent of the index.
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