The great housing crash of 2008 happened eight years ago, when many American homeowners began defaulting on risky subprime mortgages. In the years preceding the crash, the U.S. government and financial institutions helped create the housing bubble. On the one hand, the U.S. government allowed for more NINJA (no income, no job, no asset) loans to be taken out by unwitting homeowners, while U.S. banks were happy to underwrite these increasingly risky loans, profiting greatly. The default risk of these subprime mortgages was being hidden within collateralized debt obligations (CDOs).

CDOs looked like great investments during the high-interest-rate period preceding the crash, leading many global institutional investors, including pension funds, to become heavily invested. When the system crashed, it had a devastating impact on the global economy, second only to the Great Depression, and that impact is still being felt today. Even though the housing collapse occurred on American soil, the U.S. financial markets and economy have bounced back more quickly than any other country.

From 2012 to 2016, the S&P 500 generated annualized returns of 11.6%, while the S&P Global 1200, an index that captures 70% of global market capitalization, has had annualized returns of just 6.8%. The underperformance of international stock markets has mostly to do with macroeconomic developments, such as falling commodity prices and a strong dollar. Despite vast accommodative monetary policies, many countries have unemployment rates of over 15% and are struggling to grow their gross domestic products (GDPs). While the Fed decides whether to raise interest rates again, more countries are considering negative interest rate policies (NIRPs), demonstrating the weaknesses in their economies.

However, many investors see further strengthening in the U.S. economy. As the U.S. economy grows, countries around the world should benefit from investment inflows and increased demand from U.S. consumers. This will inevitably lead to international stock markets rising. The best way for investors to gain exposure internationally is through global equity exchange-traded funds (ETFs).

Best-Performing Global ETFs for 2016

After decreasing in price by more than 22% last year, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM) has gained more than 6% in 2016. Due to the fall in commodity prices, many export-dependent emerging market countries have struggled. However, some investors think that the selloffs in emerging markets have been overdone, leaving many international companies undervalued. Since bottoming out in 2009, this ETF has only increased by 77.6%, quite a small increase compared to the 204% gain of the S&P 500. In addition, the U.S. corporate profit-to-GDP ratio, a historically mean-reverting ratio, is two standard deviations higher than its mean of 11%. This means that U.S. corporate profits should start to decrease, causing investors to seek international markets for higher returns.

The iShares MSCI Emerging Markets ETF offers a great opportunity for these investors. With a 0.69% expense ratio and 848 total holdings, this ETF is a cost-effective way to diversify across international markets. Seeking to correlate directly with the performance of the MSCI Emerging Markets Index, the top three countries in which the fund invests are China (26.22%), South Korea (15.49%) and Taiwan (12.03%). Within these countries, the ETF invests almost 50% of its $21.5 billion portfolio in the financial services (27.73%) and information technology (20.95%) sectors. Offering an attractive dividend yield of 3.17%, the ETF has outperformed the S&P 500 by 5.1% and the S&P Global 1200 by 9%.

The Direxion Daily Emerging Markets Bull 3x ETF (NYSEARCA: EDC) presents a good opportunity for sophisticated investors who are looking to make a quick buck. This leveraged ETF seeks to provide 300% of the performance of the MSCI Emerging Markets Index daily. With a 1.09% expense ratio and no dividends, this volatile instrument is meant to be actively traded and does not work well for buy-and-hold investment strategies. As of March 28, 2016, the ETF had $140 million in assets under management (AUM) and increased by 13.7% since the beginning of the year.

Worst-Performing Global ETFs for 2016

The First Trust Dorsey Wright International Focus 5 ETF (NASDAQGM: IFV) has dropped by 3.5%. Founded in 2014, this ETF implements a proprietary strategy when investing internationally. Using a relative strength methodology founded by Dorsey, Wright & Associates LLC, the entire catalog of First Trust International ETFs are ranked by their relative price momentum, with the top five gaining placement into this ETF. This relative strength analysis is run on a weekly basis, and the portfolio is rebalanced accordingly. Due to this ETF's advanced strategy, it has a high expense ratio of 1.08% and a low dividend yield of 1.7%. In addition, it has an average volume of 380,000 shares traded daily and only around $480 million in AUM, presenting liquidity and closure risks to investors.

The SPDR Global Dow ETF (NYSEARCA: DGT) has also had a rough start to 2016, dropping by 2.4%. With a cheap expense ratio of 0.5% and a 2.45% dividend yield, this ETF tracks the total return performance of the Global Dow Index. The top five countries it is invested in are the United States (48.33%), Japan (9.93%), the United Kingdom (6.62%), France (6.13%) and Germany (4.76%). These five make up more than 75% of its portfolio. Within those countries, the ETF invests over 65% of its $100 million portfolio in the financial services (17.57%), industrials (13.53%), information technology (12.7%), consumer discretionary (12.53%) and health (10.15%) sectors. The ETF has extremely low average trading volumes of around 6,500 shares a day.

The Bottom Line

For investors looking to diversify their portfolios internationally, global equity ETFs are a great investment tool. Whether you are looking to invest internationally for the long term or trying to capture a quick profit over a few days, there is a global equity ETF to fit your objectives. As always, make sure to pay close attention to fees and liquidity when making an investment decision.

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