With globalization fractured, should investors consider country-specific ETFs?

It’s been less than three months since President Trump returned to the Oval Office and upended the status quo of world trade with his tariffs on/tariffs off trade policy.

And while the world reacts, not just to the immediate impact but to the idea that globalization may be over, at least in the form it has been, some countries are destined to become winners while others will lose.

In that context, should investors be looking for exposure to those potential winners through country-specific ETFs?

InvestmentNews asked Dina Ting, head of global index portfolio management at Franklin Templeton ETFs for her take on what clients are saying and how to incorporate country-specific ETFs into portfolios.

“Clients are certainly emphasizing international allocation in conversations now, although many are still awaiting clearer visibility on tariffs,” says Ting. “Generally speaking, we see clients appreciating the benefits of disaggregating broad international market exposure into targeted single country ETFs in the face of country-by-country tariff decisions.”

Ting says several single-country ETFs within Franklin Templeton’s suite of options have been in demand from the firm’s clients including the Franklin FTSE India ETF (FLIN), Franklin FTSE Brazil ETF (FLBR), Franklin FTSE Japan ETF (FLJP) and Franklin FTSE Germany ETF (FLGR). Also, the China UCITS ETF has seen recent positive net inflows.

“Industry-wide, YTD inflows into Germany reached over US$1 billion (as of the end of March) and have been largely driven by optimism over the outperformance and prospects of its defense stocks as well as the market's relatively high dividends. Japan has also seen inflows YTD but those were more mixed in March due to anxieties over tariffs,” she explains.

Investment decisions about specific countries will depend on individual investors’ allocation tactics, but Ting sees potential in ‘nearshoring’ production locations such as Mexico.

“We believe Mexico will continue to hold significant advantages as a nearshore production platform for the US. Even in the face of possible USCMA renegotiations, we feel optimistic that President Sheinbaum can ultimately convince US partners that Mexico remains key to the solution to competing with China. YTD (as of 4/14/25) Mexico's market is outperforming (+2.51%) that of the MSCI Emerging Markets Index (-3.6%),” Ting says.  

The structural position of countries plays a key role in economic growth potential and Ting says that Mexico, along with India, are looking good.

“Mexico’s plans to deepen trade relations with Latin American partners, particularly Brazil, in building a domestic industry for manufacturing pharmaceuticals and medical equipment, should bode well for its economy. And we see India continuing to benefit from its years-in-the-making infrastructure buildout, particularly in rural areas, and broadening of industries,” she says.

While the US and other countries are looking to break up Asia’s dominance in the global tech industry, particularly chip manufacturing, Ting believes Taiwan and South Korea should continue to play a crucial role with their core know-how and technological leadership difficult to replicate elsewhere due to the significant cost and the expertise required.

But if country-specific ETFs are the right choice for some clients, how much of their portfolio should be allocated to them? Is there an upper limit?

“There's no upper limit per se, but for those who disaggregate internationally, investing in countries and regions, could have similar total strategic weightings for international as those who buy broad-based. As a starting point, international markets make up 35% of available investable global markets, however, most investors are nowhere close to that allocation level,” Ting says.

Finally, are there any other trends in ETF flows that Franklin Templeton is seeing?

“The industry has been finding a consistent trend of flows into active ETFs. In recent years, active ETFs have continued gaining steady adoption and last year accounted for 79% of all US-listed ETFs launched. In terms of 2025 first-quarter flows, we saw active ETFs capture about 40% of the total $297 billion inflows, even though they made up just 9% of the total ETF market at the start of this year,” Ting concludes.