I am a fan of international country investing to diversify not only against the US but also against general exposure to large technology companies. One fund I think is worth a look in this category is the iShares MSCI Malaysia ETF (NYSEARCA:EWM), which offers investors a great way to gain exposure to Malaysian stock markets. Malaysia has a key geographic location that gives it easy access to Southeast Asian markets. The country is rich in natural resources. The workforce tends to speak English well and is well educated. Malaysia also has strong systems in place for key industries such as medical devices, semiconductors, and solar panels. EWM is the only ETF in the U.S. that tracks Malaysian stocks, giving investors the opportunity to participate in a growing economy with a lot of potential.

EWM aims to replicate the MSCI Malaysia Performance of the Index. This index is a free float-adjusted, market capitalization weighted index comprising large and mid-sized companies domiciled in Malaysia. The objective of the Fund is to provide investors with a cost-effective way to replicate the returns of this benchmark and thereby benefit from potential gains in the Malaysian markets.

A look at the stocks

EWM’s portfolio consists of 32 holdings. The top 10 holdings, which together represent just over 60% of the ETF’s investments, clearly have a high concentration risk, but this is not too surprising given that this is a single country fund.

What do these companies do? Public Bank is a Malaysian banking group that excels in retail banking and financial services. Its strong position in the Malaysian financial scene underlines how important this sector is to the country’s economy. Malayan Banking offers many things: regular banking, investment banking and Islamic banking. CIMB Group plays a big role in Malaysian banking. It offers retail banking, investment banking and Islamic banking services. Tenaga Nasional is Malaysia’s largest electricity utility company. Its presence in the fund indicates EWM’s stake in the country’s key infrastructure and energy sectors. And Press Metal Aluminium Holdings is a leader in integrated aluminium production.

Sector composition and weighting

The financial sector makes up the largest portion of EWM’s holdings at almost 40%, but the fund also allows you to invest in other important parts of the Malaysian economy.

Utilities make up 14.99% of the portfolio, consumer goods 10.88%, industrials 8.27% and materials 7.99%. This mix of different sectors gives investors a good overview of Malaysia’s economic situation.

Comparison with competitors

In the world of individual emerging market ETFs, EWM has no direct competitors offering focused exposure to Malaysian equities. However, investors could look at broader regional ETFs such as the iShares MSCI Pacific ex Japan ETF (EPP). Looking at EWM’s price to EPP ratio, we see that EWM has underperformed since late 2019, but recent relative performance looks encouraging and could see a rebound.

pros and cons

On the positive side, Malaysia’s position as an emerging market with a rapidly growing middle class and good population trends could support steady economic growth and rising corporate profits. The country’s central location in the middle of Southeast Asia, as well as its mixed economy, which includes sectors such as manufacturing, finance and energy, make it even more attractive to investors.

Still, investors need to be mindful of the risks associated with investing in a single country ETF. Political unrest, exchange rate fluctuations and unclear rules can cause ups and downs and impact your returns. In addition, Malaysia’s economy is heavily dependent on global trade and the sale of commodities, making the country vulnerable to changes in other countries’ desires and pricing. Also, consider the high concentration here, not just in the top holdings but across the entire financial sector.

Diploma

Overall, I like the story and the fund here. It offers good diversification as an emerging market investment, has a completely different industry mix than in the US, and offers exposure to a part of the world that is growing and has a solid demographic. If you are a fan of international diversification, I think it makes sense to consider the EWM ETF as part of your overall strategy.

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