What is IDEV? (Pros, Cons, and Strategies)
Investing in international markets is an effective way to diversify your portfolio and mitigate risks specific to the U.S. market. One popular choice for this type of diversification is IDEV, the iShares Core MSCI International Developed Markets ETF. By providing exposure to developed markets outside North America, IDEV offers a balanced approach to international investing. In this blog post, we'll delve into what IDEV is, discuss its advantages and disadvantages, and explore some effective investment strategies.
What is IDEV?
IDEV is an international ETF designed to give investors exposure to developed markets outside the United States and Canada. IDEV stands for iShares Core MSCI International Developed Markets ETF and is managed by BlackRock.
IDEV tracks the MSCI World ex USA Investable Market Index, which includes a wide range of companies from 22 developed markets. Unlike many ETFs that focus solely on U.S. equities, IDEV provides a way to invest in well-established international companies.
Key Features of IDEV
- Exposure to over 2,400 companies from 22 developed markets
- Broad coverage of sectors and industries
- Low expense ratio compared to other international ETFs
After analyzing a broad range of stocks, IDEV includes companies across multiple sectors such as financials, industrials, technology, and healthcare. It aims to replicate the performance of the MSCI World ex USA Investable Market Index as closely as possible, minimizing tracking error.
IDEV Composition
IDEV consists of well-known multinational companies such as Nestle (NSRGF), Sony (SONY), HSBC Holdings (HSBC), and Toyota (TM). With a broad distribution across sectors and countries, IDEV offers a balanced investment in developed markets.
Pros of IDEV
Diversification
IDEV provides extensive diversification by investing in over 2,400 companies across various sectors and developed markets. This reduces the risk associated with investing heavily in a single market or sector.
Low Expense Ratio
Like many iShares core ETFs, IDEV comes with a low expense ratio of 0.05%. This is particularly beneficial for long-term investors as lower fees lead to higher net returns over time.
Access to Developed Markets
Investing in IDEV grants you exposure to well-established, financially stable companies in developed markets. This reliability can be an excellent counterbalance to the volatility sometimes observed in emerging markets.
Cons of IDEV
Currency Risk
With international investments, currency fluctuations can impact returns. For U.S.-based investors, the value of the U.S. dollar against other currencies can affect the performance of IDEV.
Limited Emerging Market Exposure
While IDEV provides exposure to developed markets, it lacks investments in emerging markets, which often have higher growth potential. This may limit the potential upside for investors seeking aggressive growth.
IDEV Investment Strategies
IDEV is suitable for investors seeking to diversify their portfolios with minimal fuss. Here are a few strategies to consider:
Long-Term Investment Strategy
Given its stable composition and low expense ratio, IDEV is ideal for long-term investments. Continuous exposure to multiple sectors and developed markets helps hedge against sector-specific and country-specific downturns. Over a horizon of 10 to 20 years, the broad diversification can provide substantial returns.
Core-Satellite Strategy
IDEV can serve as the "core" of your portfolio, providing a stable foundation of international holdings. Complement this with "satellite" investments in specialized ETFs, sectors, or individual stocks to balance between stability and growth.
Dividend Reinvestment
While IDEV is not primarily a high-dividend ETF, it does provide periodic dividends that can be reinvested. This practice can enhance returns over the long term by leveraging the power of compounding.
Conclusion
IDEV stands out as a compelling option for investors looking to diversify their portfolios with international exposure. With its low expense ratio and broad range of investments in developed markets, IDEV offers stability and diversification. However, investors should be aware of potential currency risks and the lack of emerging market exposure.
Final Thoughts
Whether you're a long-term investor or looking to balance your domestic holdings with international exposure, IDEV offers a reliable and cost-effective way to achieve your investment goals. By incorporating it into a well-thought-out strategy, you can enjoy the benefits of global diversification and steady returns over time.