ASX investors are a patriotic lot. We tend to prioritise buying shares on our local stock market. Stocks like Commonwealth Bank of Australia (ASX: CBA), Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Westpac Banking Corp (ASX: WBC) can be found in many ASX share portfolios around the country.
Thanks partly to our unique system of franking, as well as some good old fashioned love of country, it's fair to say that ASX investors have a strong local bias.
When we do branch out to invest beyond our shores, it is usually a direct flight to the US markets. As I've written here before, the US is, as it should be, the first port of call for ASX investors seeking international diversification. No one can deny that the US is home to the vast majority of the world's best and most dominant businesses. No other country's share market constituents can match the size, scope and scale of top US stocks like Amazon, Alphabet, Microsoft, Netflix, Mastercard, Procter & Gamble, Apple, and countless others.
However, that doesn't meaning investing in US stocks isn't without risk. The US-Iran war that has been raging all month proves that. As such, I think the prudent investor might wish to consider diversifying beyond just Australia and America. The easiest way to do this, by far, is by using exchange-traded funds (ETFs).
Let's go through some of the best options for stocks outside Australia and the US.
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3 ASX ETFs that can help diversify a portfolio
First up, there's the Vanguard All-World ex-US Shares Index ETF (ASX: VEU). This ETF, as its name implies, throws a whole bunch of different countries' stock markets together, with the notable exception of the US. The largest contributors to VEU's portfolio include Japan, the United Kingdom, China, Canada, India, and Taiwan. A healthy mix of advanced and developing economies there. ASX do feature in this ETF as well, although they make up just 4.3% of the entire portfolio.
Another option to consider is the Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE). VGE focuses exclusively on emerging economies, so you won't find European, British or Japanese stocks here. Instead, VGE's largest contributors are countries like China, Taiwan, Brazil, South Africa and Saudi Arabia.
Finally, investors can consider the iShares MSCI EAFE ETF (ASX: IVE). This fund covers markets from Europe, Asia and the Far East (EAFE). It offers exposure to countries ranging form Japan, Spain and the UK to Germany, Singapore and Israel. Again, Australia is included as well, but contributes just over 6% to IVE's holdings.
Foolish takeaway
All three of these ASX ETFs offer Australian investors an easy way to add exposure to stocks from Europe, Asia and Africa to their portfolios. These regions are under-represented in the vast majority of ASX portfolios, and can help insulate investors from adverse movements on the American or Australian markets.
