Can You Diversify Too Much?

06/14/2013 7:00 am EST

Focus: ETFs

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Sometimes, a more focused approach to diversification can be more advantageous, writes Jim Lowell of Forbes ETF Advisor.

Overall, I think the international markets may recover...not a bold claim. But that if they do, I don't think such favor will be universal and equal.

That means that I don't like buying whole established international marketplace ETFs as if their risks and returns are created equal, as much as I like more selectively constructed and concentrated foreign stock ETFs. If a rising tide lifts all boats, I'd expect the more selective and concentrated international ETFs to rise faster and higher than the average broad-based international ETF.

Therefore, buy BLDRS Developed Markets 100 ADR (ADRD). This ETF's benchmark is the BNY Mellon Developed Markets 100 ADR Index, which is made up of approximately 100 developed market-based depository receipts. The focus is mega-cap; and mega-caps derive some defense form generating revenue beyond their country and zone's pale.

The top five country representations are the UK (38.5%), Japan (15.2%), Switzerland (9.7%), France (6.9%), and Germany (5.3%). The top three sectors are financials (24.2%), health care (16.7%), and energy (13.8%). Top holdings include HSBC Holdings (HBC), Novartis (NVS), and Toyota Motor (TM).

Also, buy iShares MSCI EAFE Small Cap (SCZ). The MSCI EAFE Small Cap Index is made up of the small-cap stocks from the MSCI EAFE Index.

The top five country representations are Japan (27.8%), UK (21.8%), Australia (7.2%), Germany (6.3%), and Switzerland (3.7%). The top three sectors are industrials (21.5%), financials (20.5%), and consumer discretionary (19%). I like the resilience of consumer over and against the ravages of governments.

Finally, buy SPDR Global Dow (DGT). DGT seeks investment results that correspond to the price and yield performance of The Global Dow Index, which is made up of 150 companies from around the globe chosen by an Averages Committee made up of the managing editor of The Wall Street Journal, head of Dow Jones Indexes research, and head of CME Group research.

Companies are chosen based on size, reputation, and potential for growth. It began trading in September 2000, and has a market value of $100 million.

The top five country representations are the US (43.2%), Japan (11.7%), UK (6.7%), France (6.4%), and Switzerland (4.5%). The top three sectors are financials (18.8%), industrials (14.3%), and consumer discretionary (13.2%). Top holdings include Vestas Wind Systems, Gilead Sciences (GILD), and UBS AG (UBS).

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