Exchange-traded funds can provide an effective way for investors to get exposure to a wide variety of specific international markets, a panel of experts said on Monday.

Speaking at the Exchange Traded Forum in Toronto – a two-day conference held by Radius Financial Education – executives from various financial industry firms discussed the growing popularity of ETFs and the ways advisors can use these tools in their clients’ portfolios.

Largely contributing to the surge in popularity of ETFs is the access that they provide to markets and sectors that were previously expensive and challenging for retail investors to access, according to Pat Chiefalo, director of derivatives and structured products research at National Bank Financial.

“The fact that we have a huge number of ETFs and it continues to grow,” said Chiefalo, “it gives you exposure that you couldn’t get access to before.”

For example, ETFs that track securities in individual countries allow investors to get highly specific exposure that was previously much harder to tap into. These types of ETFs can be extremely effective for filling gaps in a portfolio, according to Alfred Lee, investment strategist at the Bank of Montreal’s ETF and global structured investments unit.

“If you want to build a portfolio with a global perspective, single country ETFs are a good way to do it,” said Lee.

Broader emerging market ETFs, for instance, are often largely concentrated in China and Brazil, providing little exposure to some of the other high-growth emerging markets. Single country ETFs could be used as a complement to a broader emerging market fund to provide access to these other countries, suggested David Munro, research analyst at DundeeWealth Private Client Research.

Lee added that single country ETFs are particularly appealing in the current environment, since different countries are emerging from the global recession at different rates. He suggested that advisors could use these ETFs to help clients increase their exposure to economies that are more rapidly rebounding.

“Certain countries will outperform others at different times in the economic cycle,” Lee said. In the current environment, he suggested that investors could bulk up their weighting of South Korean stocks, since that economy has been performing well recently. “Not all countries are the same. If you look at the U.S., it’s not in the same economic condition as China, or even Canada.”

When investing in global ETFs, however, it’s important to do your research and completely understand the underlying holdings of the fund, the panelists warned.

“A lot of these country-specific ETFs, when you look at the baskets of stocks that underpin them, you’re getting something which may not exactly correlate with what your understanding is of the economic outlook for that specific country or market,” said Yves Rebetez, vice president of ETFs and structured products at RBC Dominion Securities Inc.

As an example, Rebetez noted that the S&P 500 doesn’t necessarily reflect the performance of the U.S. economy, since a large proportion of the constituents’ earnings are derived from international markets.

As investors increasingly embrace global ETFs, the panelists said it’s important to consider currency hedging. Lee noted that currency market volatility has exploded in the past five years, contributing to the volatility of Canadian investors’ international portfolio holdings. He expects this currency volatility to continue in the next few years, given the prospects of a “global currency war” and the uneven state of the global economic recovery.

“I think currency hedging is a very important consideration that a lot of investors should consider,” Lee said. “I think it very often is overlooked.”

Advisors should also consider the weighting methodology utilized by any ETF tracking a specific market. While most traditional ETFs were market-cap weighted, many fund providers have introduced funds that utilize equal weighting or fundamental weighting methodologies. These different strategies can impact the performance and the risk of a market index, according to Lee.

“There are a lot of different options that investors can consider right now,” he said. “They all have their benefits and drawbacks.”