What is TDI? (Pros, Cons, and Strategies)

In the world of ETFs, the Touchstone Dynamic International ETF (TDI) stands out as a compelling option for investors looking to diversify their portfolios with international exposure. Today, we'll explore what TDI is, along with its advantages and disadvantages.

What is TDI?

TDI stands for Touchstone Dynamic International ETF. Unlike many domestic ETFs, TDI provides investors with exposure to international stocks, offering a broader diversification in their portfolio.

TDI seeks to track the performance of the Global Target Index™, which prioritizes developed and emerging markets' equities. It aims to invest in companies that exhibit strong growth potential and stable financial health.

Key Features of TDI

• Exposure to international markets, including both developed and emerging economies.
• Investment in companies demonstrating robust financial metrics and growth potential.
• A diversified portfolio spanning multiple countries and sectors.

The Global Target Index™ selects stocks based on factors such as revenue growth, profit margins, and stability in financial performance. This focus on comprehensive financial strength ensures TDI includes companies poised for sustainable long-term growth.

TDI Composition

TDI comprises a mix of well-known companies from various sectors and regions. This includes European giants like Nestlé and Asian tech firms like Tencent. By including a diverse array of companies, TDI mitigates the risk associated with investing in a single region or sector.

Pros of TDI

Diversified International Exposure

One of TDI's most significant advantages is its international diversification. Investing in TDI allows you to benefit from growth opportunities in both developed and emerging markets, reducing the risks tied to economic downturns in any single country.

Strong Financial Metrics

The companies included in TDI have been selected based on their strong financial metrics. This focus on financial health and growth potential ensures that you are investing in companies likely to deliver robust returns.

Potential for Higher Returns

International markets, especially emerging economies, often have higher growth rates compared to established markets. This means TDI has the potential to offer higher returns, especially if emerging markets perform well.

Currency Diversification

Investing in TDI also offers currency diversification. Depending on global currency movements, this can either amplify returns or mitigate losses, providing an additional layer of financial security.

Cons of TDI

Higher Volatility

Investing in international markets can be more volatile than investing domestically. This increased volatility stems from political, economic, and currency considerations unique to each country.

Higher Expense Ratio

TDI typically has a higher expense ratio compared to domestic ETFs, reflecting the costs associated with managing an international portfolio. These higher costs can eat into the returns, especially over the long term.

Currency Risk

While currency diversification can be a pro, it can also be a con. Fluctuations in currency exchange rates can impact the value of your investment, sometimes negatively.

Market and Political Risks

International investments are exposed to market and political risks that may not affect domestic investments. Factors like geopolitical tensions, regulatory changes, and political instability can significantly influence returns.

TDI Investment Strategies

Investing in TDI requires a slightly different approach compared to domestic ETFs, given its international focus and associated risks.

Long-term Investment Strategy

TDI is best suited for long-term investors. Over the long term, the growth potential in emerging markets and stable performance of developed markets can provide substantial returns. However, given the higher risk and volatility, a longer investment horizon helps smooth out the bumps along the way.

Geographic and Sector Diversification

To reduce risk, consider diversifying your investments not just across different ETFs but within TDI as well. Focus on diversification across different geographic regions and sectors to mitigate region-specific risks.

Regularly Review and Rebalance

Given the dynamic nature of international markets, regularly review and rebalance your TDI holdings. Stay informed about global economic trends and be ready to adjust your portfolio to adapt to those changes.

Reinvesting Dividends

Just like with any other ETF, reinvesting dividends will leverage the compound effect and bolster long-term returns. By consistently reinvesting the dividends, you can benefit from the growth of the international markets over time.

Combining with Domestic ETFs

While TDI provides excellent international exposure, combining it with domestic ETFs can create a balanced and diversified portfolio. This strategy leverages the potential growth of international markets while maintaining the stability of domestic investments.

Conclusion

TDI offers investors robust international exposure, balanced by strong financial metrics and growth potential. While it brings additional risks like higher volatility and currency considerations, strategic long-term investment can yield substantial returns. If you are looking to diversify your portfolio internationally, TDI is an option worth considering. By applying a well-thought-out strategy and maintaining a diversified approach, TDI can be a valuable component of your investment portfolio.