These Single-Country ETFs Can Hedge Your U.S. Risk

Investment strategists at both BlackRock and Franklin Templeton currently favor Korea ETFs as a portfolio overweight. (SeongJoon Cho/Bloomberg)

Key Points

• In 2022, while the S&P 500 index fell 18%, several single-country ETFs saw significant gains, including Turkey, up 106%, and Chile, up 24%.
• When added to a U.S.-centric portfolio, single-country funds can reduce one’s overall risk, sometimes rising when U.S. stocks fall, or at least falling less.
• Vietnam and Greece are experiencing economic upgrades and increased investment flows, with their ETFs showing lower price/earnings ratios and correlations to the S&P 500.

When the U.S. sneezes, the rest of the world catches a cold. Or so the old Wall Street saying about foreign-stock investing goes.

The notion that all stocks worldwide rise together and move in lockstep downward is a common perception. But in 2022, when the S&P 500 index plummeted 18% because of high inflation, the iShares MSCI Chile exchange-traded fund was up 24%, the iShares MSCI Brazil ETF rose 13%, the WisdomTree Japan Hedged Equity ETF was up 8%, and the Global X MSCI Greece ETF rose 3%. The super-volatile iShares MSCI Turkey ETF was up 106%.

Such wide-ranging performance proves a lesser-known Wall Street saying: There’s always a bull market somewhere. While many U.S. investors seek overseas diversification through broad index funds such as the $545 billion Vanguard Total International Stock ETF, these aren’t the best choices, as many large multinational companies—which have the biggest weightings in international indexes—often have significant exposure to the U.S. economy and markets. The Vanguard ETF was down 16% in 2022, and large-cap companies still account for almost 80% of its portfolio, according to Morningstar.

It would be foolish to invest your entire stock portfolio in a volatile single-country fund. But when added to a U.S.-centric portfolio, single-country funds can actually reduce one’s overall risk by acting differently than the S&P 500, sometimes rising when U.S. stocks fall, or at least falling less.

U.S. stock correlation shouldn’t be the only reason to consider a country fund. Valuations and macroeconomic factors play a role, too. Malcolm Dorson, a senior portfolio manager at Global X ETFs, which runs nine single-country ETFs, says Vietnam and Greece are undergoing structural changes to their economies and markets that give them advantages. After years of struggling for global respectability, both are being upgraded by benchmark designers such as FTSE and MSCI because of recent economic strength—from a frontier to emerging market in Vietnam’s case, and from an emerging to developed market in Greece’s. This will cause assets to flow into their securities from index funds, driving returns higher.

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“All three sovereign rating agencies upgraded Greece’s debt to investment grade over the past year, and FTSE has [recently announced it will] classify it as a developed market in September 2026,” Dorson says. It’s a similar story with Vietnam, with the added benefit that U.S. companies seeking to outsource their manufacturing are now using Vietnam instead of China, hoping to skirt trade tensions.

Dorson calls Vietnam “a friend-shoring alternative to China in terms of being a trade partner and manufacturing center.”

According to Morningstar Direct, the Global X MSCI Vietnam ETF’s portfolio has an average trailing 12-month price/earnings ratio of 20 versus the S&P 500’s 28, despite the fact the ETF is up 59% this year. The Global X MSCI Greece ETF has an 11 P/E and is up 64%. According to Global X, in the past three years, the Vietnam ETF’s correlation with the S&P 500’s price moves has been 30% and the Greece ETF’s 50%, indicating differentiated performance. The two country ETFs had only a 19% correlation with each other, so they could be combined for even greater diversity.

Four firms offer the most single-country ETFs—BlackRock’s iShares, Global X, VanEck, and Franklin Templeton. Investment strategists at both BlackRock and Franklin Templeton currently favor Korea ETFs as a portfolio overweight.

Kristy Akullian, head of iShares investment strategy for the Americas, sees Korea— a semiconductor manufacturing leader —as a cheaper way to play the artificial-intelligence chip trend. She also likes the country’s recent investment reforms—more corporate board accountability, greater minority shareholder rights, and positive changes to taxation.

When used to supplement a U.S.-centric portfolio, these ETFs could zig when the S&P 500 zags.

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