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Why Schwab Unit Windhaven is Overweight International ETFs


International assets are playing a greater role in a well diversified investment portfolio. With exchange traded funds, investors have found an efficient and easy-to-use too tool to access overseas markets.

For instance, Windhaven Intvestment Management, a part of Charles Schwab Corp., is currently overweight international markets, allocating almost twice as much year-over-year, reports Murray Coleman for the Wall Street Journal. The Windhaven diversified growth ETF-managed portfolio has about a 25% weighting to international stocks and bonds, compared to 12% to 13% last year.

“At this time last year, we were at an all-time high in terms of the ratio of assets allocated to domestic versus international stocks in our diversified growth strategy. Now, we’re taking a much more balanced approach,” Stephen Cucchiaro, Windhaven’s chief investment officer, said in the article.

Windhaven develops and creates prepackaged ETF portfolios for advisors and investors. The fund manager has $13.5 billion in assets under management and also runs three of the five biggest ETF-managed portfolios.

The asset manager largest overweight position is in international real-estate ETFs.

While the asset manager has not disclosed any specific products. Investors can still play the overall themes with options including:

  • SPDR Dow Jones International Real Estate ETF (RWX)
  • Vanguard Global ex-U.S. Real Estate ETF (VNQI)

“As the world’s central banks have been driving interest rates lower, the costs of doing business for real-estate developers outside the U.S. has reached record lows,” Cucchiaro added. “We also believe they still have more room to rise in order to catch up with domestic markets.”

Moreover, the manager is looking at Hong Kong and German stock ETFs.

  • iShares MSCI Hong Kong Index Fund (EWH)
  • iShares MSCI Germany Index Fund (EWG)

“We believe that valuations remain fairly low and Hong Kong equities still have an opportunity to rise substantially in 2013,” Cucchiaro said.

“Germany should benefit in the coming year from its tie to the euro and the economic stimulus being provided by the European Central Bank,” Cucchiaro added. Additionally, he pointed out that large exporters are well-positioned in a weaker euro environment.

For the fixed-income side, the manager has been putting more into emerging-market bond ETFs, notably those tied to Asian issues denominated in local currencies.

  • WisdomTree Asia Local Debt Fund (ALD)
  • PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM)
  • Market Vectors Renminbi Bond ETF (CHLC)
  • Guggenheim Yuan Bond ETF (RMB)

Domestically, the portfolio managers are overweighting ETFs that track the tech-heavy Nasdaq-100 Index.

  • PowerShares QQQ (QQQ)

“Tech still looks undervalued to us,” Cucchiaro said. “We think that like last year, the Nasdaq-100 is positioned to outperform the S&P 500 in 2013.”

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own QQQ.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.