Top 5 Asia-Pacific ETFs

The Asia-Pacific region is a hotbed of economic activity, bringing together a wide range of countries at different stages of their economic development. Japan stands as the region’s oldest statesman, while China has shamelessly taken control the role of the biggest economy there. With many countries involved, using an exchange-traded fund to gain measured exposure to a wide range of Asia-Pacific stocks is attractive to many investors. The following five Asia-Pacific ETFs demonstrate the diversity of the region and the need to carefully consider investment opportunities before making a final decision.

Asia-Pacific ETF

Assets under management

Expense ratio

Average over 5 years Annual return

Vanguard FTSE Pacific (VPL -0.21% )

$ 4.41 billion

0.10%

8.7%

iShares MSCI All Country Asia excluding Japan (YYYYY -0.25% )

$ 3.99 billion

0.72%

7.2%

iShares MSCI Pacific outside Japan (PPE -0.40% )

$ 3.02 billion

0.49%

6.3%

iShares Core MSCI Pacific (IPAC)

$ 1.04 billion

0.10%

5.0% *

Emerging Asia-Pacific SPDR S&P (GMF)

$ 368 million

0.49%

8.5%

Data source: Fund providers. * Since its creation on June 10, 2014.

Different ways of looking at the Asia-Pacific region

The key thing to understand about broad-based Asia-Pacific ETFs is that they need to tackle the threshold issue of which countries to include in their definition of the region. The most important question is probably whether to include the Japanese stock market, which is important and overshadows most other countries in the region. Vanguard FTSE Pacific includes Japan, giving it an allocation of almost 60% in the fund, and leaving 17% of Australia, 12% of South Korea and 9% of Hong Kong as other major country allocations in the within the fund. From a sector perspective, the Financials, Tech, Industrials and Consumer Discretionary sectors get the highest share of assets, totaling over 60%, but the fund remains relatively diversified and matches well to its benchmark.

The iShares Core MSCI Pacific ETF also takes an approach that includes Japan, with the island nation taking an even larger two-thirds of the fund’s assets. Australia, Hong Kong and Singapore are the other countries with significant investments, with South Korea noticeably absent. Financials, Industrials and Consumer Discretionary hold over half of assets, while other sectors are reasonably well balanced beyond these key sectors. The core series of iShares ETFs are relatively new, but performance has been consistent with the fund’s peers when you factor in minor hedging differences.

Image source: Getty Images.

Beyond Japan

Two other iShares ETFs aim to broadly cover the Asia-Pacific region without including Japan. The All-Country Asia ETF focuses on China, South Korea, Taiwan and India, dividing three-quarters of the fund’s assets among these four countries. Technology and financials make up more than half of the portfolio, and the importance of China and India makes it almost a substitute for an emerging market equity fund.

The iShares MSCI Pacific ex-Japan ETF does not offer the coverage of emerging markets offered by its sister fund. As a result, the fund looks nothing like its peers, with almost 60% of assets invested in Australia, with Hong Kong and Singapore spreading almost all of the rest. Financial stocks make up 40% of the fund, but Australia’s natural resources help give real estate and materials a bigger role than most Asia-Pacific ETFs.

Finally, the SPDR S&P Emerging Asia Pacific ETF explicitly targets emerging countries in the region. China captures 45% of the fund’s assets, followed by Taiwan at 22% and India at 18%. IT and financial stocks make up more than half of the fund’s holdings, with a clear focus on Chinese internet players, making the ETF attractive to many growth investors.

Which Asia-Pacific ETF is in your portfolio?

None of these ETFs will meet the needs of all investors because they have such different focus areas. The inclusion of Japan makes an Asia-Pacific ETF play a role in an even larger diversified portfolio, while leaving it out is an explicit attempt to take advantage of faster growing economies. Either of these strategies is reasonable as long as it matches your particular financial goals and tolerance for risk.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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