The MSCI EAFE Index of stocks based in developed foreign countries has returned over 22 percent annually for the past three years. Even better, the stock indexes of the twelve most economically-free countries in that index gained more than 25 percent per year. Over the past five years, investing in countries with the most economic freedom has beaten the MSCI EAFE Index by an average of four or five percentage points annually.
The Heritage Foundation computes economic freedom based on 50 measurements in the categories of trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation, and informal market activity. The economic freedom leaders among the countries in the MSCI index are Hong Kong, Singapore, Australia, United Kingdom, Switzerland, Canada, Netherlands, Belgium, Japan, Germany, Sweden, and Austria. (The U.S. ranks right after Australia.)
Many of the countries ranked high in economic freedom have exchange-traded funds (ETFs) that track the market indexes of these countries and provide an easy, convenient, and inexpensive way to invest in each country. Closed-end funds focusing on these countries also are available. Selecting several such funds may allow you to boost the returns from your international investing.