MSCI All Peru Capped Index Fund's (EPU) top holding is Buenaventura Mining (18%)

MSCI Brazil Index Fund's (EWZ) top holding is PetroBras (18%)

MSCI Spain Index Fund's (EWP) top holding is Telefonica (21%)

MSCI Italy Index Fund's (EWI) top holding is Eni SpA (22%)

MSCI Mexico Index Fund's (EWZ) top holding is  America Movil (24%)

Again, this concentration isn't necessarily a drawback; if the top holding performs well it can give a boost to the entire ETF. But the company-specific risks in the ETFs highlighted above is obviously significant because investors in these funds might not be getting the diversification they expect, and a slide in the stock price of a single company can end up weighing on the entire fund [try our Free ETF Stock Exposure Tool].

3. Overseas Exposure
In an increasingly interconnected global market, finding "pure play" exposure to an international market can be challenging. Many components of international stock ETFs generate their revenues and profits in a number of countries, in some cases relying primarily on international markets for the bulk of earnings [see ETFs To Round Out Your International Exposure]. Just as Coca-Cola relies heavily on markets outside the U.S., many of the components of international ETFs rely on demand from the U.S. and other regions of the world to drive demand.

Take the iShares MSCI Spain Index Fund (EWP) as an example; this popular ETF has Telefonica (21%) and Banco Santander (18%) as the two largest holdings. Both of those companies count on Brazil for a big chunk of earnings and an even larger portion of growth. Spain is still a key market, but hardly the only driver of those two companies (and therefore the entire ETF).

EWP isn't the only example of this phenomenon--most international equity ETFs have meaningful allocations to multi-national companies. Some have embraced small cap ETFs as a way to get "closer to the ground" in international markets, and these funds are less likely to consist of the types of companies that maintain major international operations and more likely to rely heavily on domestic consumption [see Small Cap ETFdb Portfolio ].

4. Currency Impact
When establishing a position in an international equity fund, the primary consideration of most investors focuses on the prospects of the underlying stock market. It can be equally important to analyze the outlook for the local currency as well, since exchange rate fluctuations can have a major impact on the dollar amount of an overseas investment. A strengthening local currency can boost returns to U.S. investors, while a depreciating currency can erode and positive returns generated or exacerbate losses [see For ETF Investors, Currency Exposure Matters].