Investments, tenth edition

Index Funds Called WEBS Reduce the Cost of 

Investing Abroad

 With foreign markets generally stronger this year, a new 

way to invest abroad has appeared at a good time. WEBS, 

an acronym for World Equity Benchmark Shares, represents 

an investment in a portfolio of publicly traded foreign 

stocks in a selected country. Each WEBS Index Series seeks 

to generate investment results that generally correspond 

to the price and yield performance of a specific Morgan 

Stanley Capital International (MSCI) index. 

 You sell these shares rather than redeeming them, but 

there the similarity to closed-end country funds ends. WEBS 

are equity securities, not mutual funds. WEBS shares trade 

continuously like any other publicly traded U.S. stock. In 

contrast, mutual fund shares do not trade in the secondary 

market, and are normally bought and sold from the issu-

ing mutual fund at prices determined only at the end of 

the day. The new funds create and redeem shares in large 

blocks as needed, thus preventing the big premiums or 

discounts to net asset value typical of closed-end country 

funds. As index portfolios, WEBS are passively managed, so 

their expenses run much lower than for current open- or 

closed-end country funds. 

 WEBS shares offer U.S. investors portfolio exposure to 

country-specific equity markets, in a single, listed security 

you can easily buy, sell, or short. Unlike American Deposi-

tory Receipts (ADRs) that give you an investment in just 

one company, WEBS shares enable you to gain exposure to 

a broad portfolio of a desired foreign country’s stocks. You 

gain broad exposure in the country or countries of your 

choice without the complications usually associated with 

buying, owning, or monitoring direct investments in for-

eign countries. You also have the conveniences of trading 

on a U.S. exchange and dealing in U.S. dollars. 

 Some investors may prefer the active management, 

diversity, and flexibility of open-end international equity 

index funds as a way to limit currency and political risks 

of investing in foreign markets. As conventional open-end 

funds, however, the international funds are sometimes 

forced by net redemptions to sell stocks at inopportune 

times, which can be a particular problem in foreign mar-

kets with highly volatile stocks. 

 You pay brokerage commissions on the purchase and 

sale of WEBS, but since their portfolios are passively man-

aged, their management and administrative fees are 

relatively low and they eliminate most of the transaction 

charges typical of managed funds.