Stock Market: Make Sure Your Investments Are Diversified Geographically

Gordon Pape | April 29th, 2024

A well-diversified portfolio not only covers all the key sectors but also provides exposure to key markets outside North America. Photo: serggn/Getty Images

Most investors know that a well-structured portfolio needs to be well diversified.

However, some fail to understand what that really means. A well-diversified portfolio not only covers all the key sectors, but also provides exposure to key markets outside North America.

I created a model Global Portfolio for my Internet Wealth Builder newsletter that demonstrates how to do that using only passive exchange-traded funds (ETFs). It provides global exposure at minimal cost.

The portfolio was launched in March 2012. It is designed to provide an international model for growth-oriented investors, with the diversification and low costs that ETFs offer. The target annual rate of return is 8-10 per cent.

The portfolio invests in eight ETFs, covering all parts of the globe. Investors should only track this portfolio if they are willing to accept stock market risk.

Here’s a look at how our ETFs have performed since the last update in September. Results are as of the afternoon of March 21.

iShares Core S&P/TSX Capped Composite Index ETF (XIC-T)

This ETF tracks the performance of the S&P/TSX Composite Index. The TSX has been producing decent results, and we experienced an increase of $3.61 per unit. Because of timing we received three quarterly distributions for a total of $0.77548 per unit.

iShares S&P/TSX Small Cap Index ETF (XCS-T)

This ETF tracks Canadian small cap stocks. Small caps turned around in the latest period and the units gained $1.49. Because of timing, we received three quarterly distributions of $0.3751 per unit.

iShares US Small Cap Index ETF (CAD-Hedged) (XSU-T)

U.S. small cap stocks are coming on strong after lagging for a long period. The units were up $5.55 or 15.8 per cent. We received a semi-annual distribution in December of $0.2559 per unit.

iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP-T)

This ETF tracks the performance of the S&P 500. It posted a nice gain of $8.89 (19.3 per cent) during the September-March period. We received a year-end distribution of $0.34031 per unit.

BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ-T)

This fund provides exposure to the top 100 stocks on the Nasdaq exchange. With artificial intelligence continuing to drive tech stocks, this ETF recorded a strong gain of $23.90 (22.8 per cent) in the period under review. We received a year-end distribution of $0.38 per unit.

iShares MSCI EAFE Index ETF (CAD-Hedged) (XIN-T)

This ETF tracks markets in Europe, Australasia, and the Far East. Despite the on-going problems in China, the stock markets in those countries posted positive returns during the period and these units gained $4.36 (13.7 per cent). We received a semi-annual distribution of $0.35703 per unit in December.

iShares MSCI Frontier and Select EM ETF (FM-N)

This ETF holds major companies in so called “frontier” countries from Nigeria to Vietnam, as well as some emerging markets stocks. These markets have not done well for us, but we’ve seen a turnaround in the past year. In the latest six months the units were up US$1.60 (6 per cent). We received a year-end distribution of US$0.525 per unit in December.

iShares MSCI Emerging Markets ETF (EEM-N)

After a long losing streak, emerging markets produced a gain of $3.07 per unit in the latest six-month period. We received a nice year-end distribution of US$0.748 per unit. The result was to move us from a negative position to slightly above breakeven.

We had cash and retained income of $1,240.56, which we deposited with Duca Credit Union at 5.25 per cent. We received interest of $32.56.

Comments: After taking a hit in 2022, the portfolio did well in 2023 and that pattern has continued this year. The total value as of March 21 was $59,607.90, up 16.9 per cent from the September review. Nasdaq (ZQQ) was once again our best performer, with a 22.8 per cent gain in the unit price.

As a result, our cumulative gain since inception improved to 198 per cent. That works out to a compound average annual growth rate of 9.53 per cent. That’s close to the top of our original target range.

Changes: The portfolio is performing as expected. I see no need to replace any components. But we have enough in retained earnings to add 10 units of XIC at $35.46 for a total cost of $354.60. We now own 310 units and have $82.43 remaining in retained earnings.

We have cash and retained income of $1,495.90. Duca Credit Union is still offering 5.25 per cent on its high interest savings account with no minimum balance, so we’ll leave the money there.

I’ll review the portfolio again in September.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.

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