Visual Risk Analysis Of The FTSE ASEAN 40 ETF (ASEA)

by on April 5, 2013 | Updated April 10, 2013 | ETFs Mentioned:

When it comes to portfolio allocation strategies, foreign investments are certainly one of the main go-tos as investors look to various corners of the market for more lucrative opportunities. Adding exposure to equities from around the globe not only provides great diversification benefits, it also has the potential to produce uncorrelated returns that may be more appealing than domestic investments  [see 101 ETF Lessons Every Financial Advisor Should Learn].

And while there are dozens of ways to gain international exposure, one question in particular that stumps many investors is which approach to take; some choose to cast a wider net over the space with a broad-based ETFs, while others may wish to take advantage of the targeted exposure offered through country-specific funds.

How the ASEAN 40 ETF Stacks Up Against Country-Specific Funds

One particular fund that lends itself perfectly to answering the age old question of broad-based versus country-specific exposure is the FTSE ASEAN 40 Index ETF (ASEA, C+). This fund offers exposure to the largest companies in the original five ASEAN countries: IndonesiaPhilippinesSingaporeMalaysia and Thailand.


But while the ASEAN members share some similarities in terms of geography and demographics, they are far from identical – especially when looking at the level of economic development. The chart below illustrates the differences between risk/return profiles among the biggest ASEAN country-specific ETFs and the broad-based FTSE ASEAN 40 Index ETF (ASEA, C+) [see Asia-Centric ETFdb Portfolio].

Note that the risk/return profile is defined by a fund’s 200-day volatility and trailing one-year return, while the respective annual dividend yield of each ETF is represented by the size of each bubble [see 3 Things You Need To Know When Picking A Country ETF]:

  • FTSE ASEAN 40 Index ETF (ASEA, C+)
  • MSCI Indonesia Investable Market Index Fund (EIDO, B-)
  • MSCI Philippines Investable Market Index Fund (EPHE, C)
  • MSCI Malaysia Index Fund (EWM, B+)
  • MSCI Singapore Index Fund (EWS, B+)
  • MSCI Thailand Index Fund (THD, C+)

It is important to note that the chart above is based on trailing returns, and as such, its compositions is subject to changes over time. While there is no universally right choice from the above ETFs, it is important for investors to take a close look under the hood of these products to determine which combination of risk and return is appropriate. For example, the broad-based ASEA has a relatively low volatility (though not the lowest of the list) and has provided meaningful returns and yields over the trailing one-year period. In contrast, the highly volatile Philippines ETF (EPHE) would be more appropriate for someone who is willing to take on more risk to capture higher return potentials.

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Disclosure: No positions at time of writing.