Investment Primer: The Region & Country Composite

What, Why, and How of Region & Country Funds

The Region & Country composite includes funds that provide targeted exposure to the equity markets of specific geographic areas outside of the United States, ranging from broad regions like the Eurozone to single countries like Japan or India. The “why” behind these funds is to allow for precise, tactical, and strategic positioning within a global portfolio. Unlike broad international funds that offer diversified exposure, these are concentrated tools used to express a specific view on a particular market.

The “how” is typically achieved through passive Beta strategies that track a well-known index for a specific country or region (e.g., an MSCI Japan Index). This allows investors to capture the performance of that specific market. These funds are primarily used in two ways: strategically, to permanently overweight a region an investor believes has superior long-term growth prospects, or tactically, to make shorter-term trades based on economic data, political events, or market momentum.

Portfolio Construction Approaches

Region & Country funds are almost always used as “satellite” positions to complement a core global or international equity holding.

Strategic Overweighting: An investor might use a broad Dev Ex-U.S. fund as their core but believe that a specific country, like Japan, has unique long-term tailwinds. They can add a dedicated Japan ETF to their portfolio to increase their allocation to that market beyond its weight in the core index. This is a long-term, strategic bet on the outperformance of that specific region.
Tactical Positioning: This is a more active approach where an investor uses a country or region fund to make a short-to-medium term trade. For example, if an investor believes that European markets are undervalued and poised for a rebound, they might buy a Eurozone ETF. This position would be held until the investment thesis plays out, and then potentially sold. Tactical decisions are often informed by a combination of macroeconomic analysis and technical analysis of market trends.

A Practical Guide to Locating Funds in the ETF Action Database

A proper peer group is essential for any comparative analysis. A good starting point is the Region & Country ETF Dashboard, which groups all relevant ETFs by their specific geographic focus, with hyperlinks to the ETF Database for deeper analysis.

Foundational Screening: Building the Initial Universe

The first step is to use the top-level classification filters to isolate funds within the Region & Country composite.

Step 1: Select the Database. Navigate to the ETF, Mutual Fund, or other desired database.
Step 2: Filter by Asset Class. Select Asset Class = Equity.
Step 3: Filter by Composite. Select Composite = Region & Country.
Step 4: Filter by Region or Country. To find funds for a specific area, use the Region filter (e.g., Eurozone, Asia-Pacific) or the Country filter (e.g., Japan, India, China).

Advanced Filtering: Refining Your Peer Group

After the foundational screen, the list can be refined by screening for outliers and unique characteristics.

Brand (Issuer): Investors may prefer to stick with established fund providers with long track records in international investing.
Assets Under Management (AUM): Setting a minimum AUM threshold can screen out smaller funds that may be illiquid or face viability risks.
Expense Ratio: Costs are a critical factor, especially in single-country funds where they can be higher.
Liquidity (ETFs only): For ETFs, metrics like average daily trading volume and bid-ask spreads are particularly important for tactical trading.

A Framework for Evaluating Region & Country Funds

A thorough evaluation of these funds requires a multi-faceted approach that combines top-level performance analysis, a deep look into the fund’s composition, and, for tactical investors, an assessment of market trends using technical analysis.

Risk/Return Analysis: The Importance of Benchmarks

The foundational step is to analyze a fund’s historical risk and return profile against an appropriate benchmark for its specific market.

ETF Action assigns a Beta Tracker to each category—a specific, broad-based ETF chosen to represent that market segment (e.g., a large, liquid MSCI Japan ETF for the Japan category). Key metrics from the Risk & Return report should be compared against this Beta Tracker to gauge performance. While the examples below are some of the most common, ETF Action’s comprehensive datasets provide a full suite of risk statistics for deeper insights.

Total Return: How has the fund performed over various time periods compared to its country or region benchmark?
Standard Deviation (Volatility): Was the fund more or less volatile than its benchmark? Single-country funds are often more volatile than diversified regional funds.
Sharpe Ratio: Did the fund provide better risk-adjusted returns?
Alpha: Did the fund add value beyond what would be expected based on its market risk?

Quantitative Analysis: The Power of Look-Through Analytics

A fund’s name tells you its geography, but its holdings reveal its actual exposures. Look-through analysis is critical for understanding the drivers of performance.

Sector & Industry Exposure: This is the most important look-through analysis. A “Japan” fund could be heavily concentrated in Industrials and Consumer Discretionary companies, while a “China” fund might be dominated by Technology and Communication Services. These sector bets are the primary drivers of a fund’s performance.
Concentration: Look-through data reveals how concentrated a fund is in its top holdings. High concentration in a few large companies can significantly increase risk.
Factor Tilts & Fundamentals: Does the fund have an inherent tilt toward Value or Growth stocks? Understanding the portfolio’s style characteristics is key to understanding its behavior.

While a detailed, manual look-through analysis provides the deepest insights, it can be time-intensive. ETF Action’s derived analytics are designed to simplify this process by providing a completely objective, rules-based framework. It’s important to distinguish between classifications and derived analytics. The classifications, such as the Equity – Region Assignment (Eurozone, Asia-Pacific) or Equity – Country Assignment (Japan, India), are rules-based labels that place a fund into a specific bucket, which is powerful for initial screening. The derived analytics, like the Equity – Sector Concentration rating or the various factor tilt scores, offer a more nuanced view. They quantify the intensity of a fund’s characteristics on a numeric scale relative to a broad global market benchmark. This dual system of objective classifications and quantitative ratings provides a powerful framework to more efficiently search for funds and conduct an initial evaluation.

Tactical Evaluation: Using Technical Analysis

For investors using these funds tactically, technical analysis is a crucial part of the evaluation process. ETF Action provides robust datasets to monitor market trends and identify potential entry and exit points.

Trend and Momentum: Indicators like moving averages (e.g., 50-day and 200-day) help identify the prevailing trend. A price above the 200-day moving average is generally considered a long-term uptrend. The Moving Average Convergence Divergence (MACD) indicator can help confirm trend strength and signal potential reversals when its lines cross. The Relative Strength Index (RSI) is a momentum gauge that helps identify overbought (>70) or oversold (<30) conditions.
Trend Health: It’s important to look beyond price alone. Market breadth indicators, which measure the number of advancing versus declining stocks within a country’s index, can confirm the health of a trend. A rally supported by broad participation across many stocks is generally stronger and more sustainable than one driven by only a few large companies.
Volume Analysis: Trading volume can be used to confirm the strength of a price move. A breakout to a new high on strong volume is generally more bullish than one on weak volume, as it indicates strong conviction from traders.

For a tactical investor, manually tracking these indicators across multiple countries and regions can be overwhelming. Building watchlists and custom dashboards within the ETF Action platform is essential for an efficient and repeatable process. This allows an investor to monitor key technical indicators for a whole list of target markets—for example, Japan, India, and the Eurozone—in a single view, making it much easier to spot emerging trends and opportunities.

Qualitative Analysis: Evaluating the Strategy

For Passive Funds (Beta): The key is to understand the index methodology. How does the index select and weight companies? Is it market-cap weighted, or does it use an alternative scheme? This is a critical distinction that affects performance.
For Active Funds (Tactical): The focus is on the manager’s process. How do they make country allocation decisions (if it’s a regional fund) or select individual stocks? The qualitative review should confirm that the manager’s philosophy is reflected in the portfolio’s look-through characteristics.

Ready to Put This Knowledge to Work?

The best insights come from the best tools. Join ETF Action to screen, compare, and analyze thousands of ETFs with our premium suite of resources for serious investors.