BillDonoghue

HEALDSBURG, Calif. (MarketWatch) — Foreign-stock ETFs respond well when their markets are strong and their currency is strengthening against the U.S. dollar. That’s the famous double whammy jackpot for U.S. investors: stock market growth and currency profits.

Usually such opportunities appear when the dollar is weakening. That was true for most of the past decade when commodity-rich countries such as Brazil, Australia, Russia and Canada were among the more vigorous investment opportunities. These countries had a sellers’ market for the raw materials (cement, copper, oil, etc.) they were shipping to countries that were building or repairing their infrastructures (bridges, roads and government buildings).

Nowadays, four emerging markets’ ETFs have generated substantial upward momentum over the past couple of months: iShares MSCI Turkey TUR, -3.34% and siblings dedicated to Chile ECH, -2.11% Malaysia EWM, -1.08% and Thailand THD, -0.94%

The irony is that the U.S. dollar has been strengthening, not weakening, so these ETFs are essentially swimming upstream. The rising dollar has not held back their performance as you might expect. Accordingly, even if the dollar begins another period of decline, that would only bode well for currency profits from these ETFs.

Wanted: low-risk, high return growth

The usual sound and conservative domestic large-cap stock choices carry too much risk these days; so an allocation to these foreign stock ETFs could help investors seeking to rebuild their income.

The U.S. stock market lacks clear direction. The euro’s weakness, the impact of the BP oil spill, and the threats of future rising interest rates make it problematic to invest in domestic stock and bond funds.

The traditional safe harbor choices (money funds and bank CDs) barely pay. Money funds will be first to reflect rising interest rate trends, just not yet.

Short-term bond funds, touted as a safe source of higher dividend income have one advantage over long-term bond funds: They will earn or lose less (not a bankable advantage) as interest rates rise.

Locking in today’s low annuity rates for the long-term is an ill-timed and high-cost alternative; patience will reward those who wait. Paying a high commission to get, in part, your own principal doled back to you monthly makes little sense. Variable annuities, which encourage advisers to invest your money in passive stock and bond sub-accounts is just too risky today.

Think globally

The best choices are low-risk foreign stock sectors successfully swimming upstream against the dollar.

Now is a good time to think globally and use what you know about stock market, interest rate and currency trends to seek profits. Traditional advice to invest 10% in international stock funds and to stick with domestic stocks flies in the face of good sense.

The major risk of investing in stocks of all kinds is that nothing goes up in a down market except correlation. When U.S. stocks slide, so do emerging markets. ETFs are liquid and don’t sport unfashionable and unjustified restrictions and redemption charges.

A good place to start learning about a role for international investing in your portfolio might be to allocate 10% each to these four foreign stock ETFs. Follow your choices closely and look for the next best ideas when these lose momentum. In the short-term, venturing abroad looks safer.