Diversifying Globally: Which Foreign Stock ETF Fits Your Portfolio Strategy

If you’re considering adding international exposure to your portfolio, two major options stand out: the Schwab International Equity ETF and the iShares MSCI ACWI ex U.S. ETF. Both are designed to serve as gateway investments for accessing non-U.S. equity markets, combining exposure to both emerging and developed economies worldwide. Understanding how these foreign stock ETF products compare across fees, performance, and holdings can help you make a more informed investment decision.

Cost and Income: Where SCHF Takes the Lead

When selecting a foreign stock ETF, expense ratios matter significantly over time. The Schwab International Equity ETF (SCHF) charges just 0.03% annually, making it dramatically more cost-effective than ACWX’s 0.32% fee. Over decades of investing, this ten-fold difference compounds substantially.

Beyond fees, dividend income also varies between the two. SCHF pays a 3.25% dividend yield compared to ACWX’s 2.7%, meaning income-focused investors will receive noticeably higher payouts. Both distribute dividends semi-annually rather than quarterly, so investors accustomed to regular quarterly income should adjust their expectations accordingly.

Five-Year Performance and Risk Analysis

Examining performance metrics reveals how each foreign stock ETF has weathered market volatility. Over the five-year period through January 2026, SCHF returned 32.25% annually, slightly outpacing ACWX’s 31.86%. A $1,000 investment in SCHF would have grown to approximately $1,342 versus $1,267 in ACWX during this timeframe.

Risk-adjusted returns tell a similar story. SCHF experienced a maximum drawdown of -29.15% compared to ACWX’s -30.06%, indicating slightly better downside protection. The beta values (0.81 for SCHF versus 0.74 for ACWX) suggest both funds are less volatile than the broader S&P 500, though ACWX shows somewhat lower price swings.

Portfolio Holdings and Sector Composition

The iShares fund holds 1,796 companies globally, with its top three holdings being Taiwan Semiconductor Manufacturing, Tencent Holdings Ltd, and ASML Holding. Financial services dominates at 24% of holdings, followed by industrials at 14% and technology at 14%.

SCHF, meanwhile, maintains 1,498 holdings with a slightly different top-three composition: ASML Holding, Samsung Electronics Ltd, and Roche Holding. Its sector breakdown emphasizes financial services and industrials similarly, but consumer discretionary ranks as the third-largest sector rather than technology.

Key Considerations for International Investors

Investing in a foreign stock ETF introduces distinct considerations compared to U.S.-focused portfolios. International equities can move independently from American stocks, driven by local economic conditions, political events, and currency fluctuations. U.S.-based investors may experience unexpected volatility patterns when foreign markets react to geopolitical developments or regional economic data.

Additionally, exchange rate movements can impact returns. A weakening dollar typically boosts returns from foreign stock ETF investments, while dollar strength can dampen gains regardless of underlying company performance. Understanding these currency dynamics helps explain why international equities behave differently during various economic cycles.

Making Your Foreign Stock ETF Decision

Both funds offer broad exposure to international markets, but SCHF emerges as the more compelling choice for cost-conscious investors. Its substantially lower expense ratio, combined with higher dividend yield and marginally better five-year returns, provides meaningful advantages over time. The slightly smaller holding count (1,498 versus 1,796 companies) represents negligible diversification difference while potentially offering more concentrated conviction in holdings.

For investors building a globally diversified portfolio, SCHF’s combination of cost efficiency and income generation makes it the stronger foreign stock ETF option. However, investors with specific technology-sector preferences or those already holding ASML or other ACWX top positions may find the iShares fund more aligned with their existing strategies. Ultimately, your choice should reflect your broader asset allocation goals and risk tolerance.