The difference can be substantial. The iShares Currency Hedged MSCI Germany ETF, for example, has had a 22 percent year-to-date return so far in 2015, compared to a 7 percent return for the unhedged iShares MSCI Germany ETF.
Choosing Countries
Government restrictions in overseas markets, such as taxes or limits for offshore investors, can also add a layer of uncertainty to single-country funds as they can create a prolonged period of trading at a premium. That's because a surge in investor demand in an ETF that can only create a limited number of shares a day may cause a fund to diverge from the true value of its underlying assets.
Deutsche Bank AG, for example, had to limit creations in its China A-Shares ETF late last year after nearly maxing out on its government-issued quota, which caused the fund to trade at a fairly consistent premium of several percentage points for most of late last year before reaching a maximum of 7.2 percent premium in December. It last traded at just under a 1 percent premium.
Because these price disparities can be extreme and because certain markets are not liquid enough, investors shouldn't count on every single-country ETF in the pipeline making it to market. Van Eck Global, one of the largest U.S. providers of single-country funds, has had a Saudi Arabia ETF in filing since 2012. But with tight Saudi restrictions on foreign investments that limit access to U.S. fund managers, they have not yet been able to receive the go-ahead from U.S. regulators.
"We are just ready and waiting," said Van Eck Global's ETF product manager Amrita Bagaria. "A lot of people believe the Saudi market will finally be open to foreign investors sometime this year."