Globally focused exchange-traded funds (ETFs) provide a straightforward way to geographically diversify a portfolio. The global economy suffered a sharp contraction in 2020 due to the impact of the COVID-19 pandemic but has begun to recover. In January, the International Monetary Fund (IMF) estimated that the global economy grew by 5.9% for all of 2021 and forecast 4.4% growth in 2022.
Individual economies are expected to grow at widely varying rates this year, depending on the pace of COVID-19 mutations and access to vaccines. Investors looking for exposure to the global recovery should consider ETFs that invest in companies from a broad range of different countries.
Key Takeaways
- The global economy is expected to continue to rebound in 2022 after the pandemic-induced contraction in 2020.
- Three exchange-traded funds (ETFs) for investing globally are SPDW, IXUS, and VWO.
- The top holding of the first fund is Nestlé S.A., and the top holding of the other two funds is Taiwan Semiconductor Manufacturing Co. Ltd.
Three ETFs that provide geographic diversification for globally minded investors are outlined below. These funds are relatively inexpensive and well-suited to long-term, buy-and-hold investing, but each ETF has a different approach. SPDW invests in developed nations, VWO focuses on emerging markets, and IXUS holds both kinds of stocks but leans toward developed markets with bigger companies.
These funds may be useful for investors with mainly U.S.-based stock portfolios who are looking for international exposure. Developed markets tend to be less volatile than emerging ones, but they often have countries with slower-growing economies, akin to investing in large-cap stocks vs. small-cap stocks. Our selection of funds is limited to those that trade in the United States, excluding leveraged and inverse funds as well as those with less than $50 million in assets under management (AUM).
Over the past year, the global ex-U.S. benchmark MSCI All Country World Index ex-USA has underperformed the U.S. market. The index has provided total returns of -0.4% over the past 12 months, well below the S&P 500’s 13.0%, as of Feb. 17, 2022. The best-performing of the three ETFs listed below is the SPDR Portfolio Developed World ex-US ETF (SPDW), based on performance over the past year. All numbers below are as of Feb. 17, 2022.
- Performance Over One-Year: 1.2%
- Expense Ratio: 0.04%
- Annual Dividend Yield: 2.21%
- Three-Month Average Daily Volume: 3,299,930
- Assets Under Management: $13.0 billion
- Inception Date: April 20, 2007
- Issuer: State Street
SPDW is a large-cap fund that tracks the S&P Developed Ex-U.S. BMI index, which focuses almost exclusively on developed countries outside of the United States. The index is market capitalization-weighted. Financials, industrials, and consumer discretionary stocks make up nearly half of the ETF portfolio combined. SPDW is among the cheapest global investing ETFs available; a similarly priced fund is the BNY Mellon International Equity ETF (BKIE), although the latter is much newer and smaller, so it may suffer from inferior liquidity.
The top holdings of SPDW include Nestlé S.A. (NESN:SWX), a Swiss food and drink conglomerate; sponsored global depositary receipts (GDRs) of Samsung Electronics Co. Ltd. (SMSN:LON), a South Korea-based multinational electronics company; and ASML Holding NV (ASML:AMS), a Netherlands-based semiconductor company.
- Performance Over One-Year: -1.4%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 2.11%
- Three-Month Average Daily Volume: 3,599,492
- Assets Under Management: $32.4 billion
- Inception Date: Oct. 18, 2012
- Issuer: BlackRock Financial Management
IXUS seeks to track the MSCI ACWI ex USA IMI index, an index of international developed and emerging market companies across the market capitalization spectrum. Financials, industrials, and information technology (IT) stocks receive the three largest portions of the portfolio. The fund’s holdings are well-distributed geographically. The ETF provides a means of accessing both emerging and developed markets in a single fund. Investors not interested in adding complexity to their portfolio by investing in multiple ex-U.S. funds may wish to focus on IXUS.
The top holdings of IXUS include Taiwan Semiconductor Manufacturing Co. Ltd. (2330:TAI), a Taiwan-based semiconductor manufacturing and design company; Nestlé; and Tencent Holdings Ltd. (700:HKG), a China-based internet services and technology holding company.
- Performance Over One-Year: -9.1%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 2.17%
- Three-Month Average Daily Volume: 16,364,966
- Assets Under Management: $84.1 billion
- Inception Date: March 4, 2005
- Issuer: Vanguard
VWO is a large-cap fund tracking the FTSE Emerging Markets All Cap China A Inclusion Index. The index is market capitalization-weighted and comprises companies in emerging markets. VWO is among the largest and most liquid ETFs in the world and is the cheapest broad-based emerging markets fund, investing in nations such as Brazil, China, South Africa, and Taiwan. Together with SPDW above, it provides broad exposure to global securities while minimizing costs.
The top holdings of VMO include Taiwan Semiconductor Manufacturing; Tencent Holdings Ltd.; and Alibaba Group Holding Ltd. (9988:HKG), a provider of e-commerce, internet infrastructure, online financial, and internet content services.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
Source: Investopedia
