Globally-focused exchange-traded funds (ETFs) provide a straightforward way to geographically diversify a portfolio. The global economy is facing a severe contraction this year due to the impact of the COVID-19 pandemic. The International Monetary Fund (IMF) estimated in October that world output will decline by 4.4% in 2020. On the bright side, some countries have been able to contain the spread of the coronavirus and their economies are already beginning to bounce back. The IMF is forecasting global output to rise 3.9% in 2021. Investors looking for exposure to the global recovery should consider ETFs that invest in companies from a broad range of different countries.
- The global economy is experiencing a severe contraction amid the COVID-19 pandemic.
- Three ETFs for investing globally are ACWI, VEU, and VSS.
- The top holdings of these ETFs are Apple Inc., Alibaba Group Holding Ltd., and Kirkland Lake Gold Ltd., respectively.
Three ETFs that provide geographic diversification for globally-minded investors are outlined below. Each fund provides unique global exposure. Over the past year, all three of these funds have underperformed the broad U.S. equity market. The Russell 1000's total return over the past 12 months is 19.4%, as of November 30, 2020. The best-performing of the three ETFs listed below is the iShares MSCI ACWI ETF (ACWI), based on performance over the past year. All numbers below are as of December 1, 2020.
- Performance over 1-Year: 15.0%
- Expense Ratio: 0.32%
- Annual Dividend Yield: 1.76%
- 3-Month Average Daily Volume: 4,018,265
- Assets Under Management: $14.2 billion
- Inception Date: March 26, 2008
- Issuer: iShares
ACWI tracks the MSCI All Country World Index, which is designed to gauge the performance of global equity markets. The ETF provides broad exposure to a range of mostly large-cap companies in developed and emerging market economies across the world, including the U.S. The fund follows a blended strategy, investing in a mix of both growth and value stocks. While the fund is globally focused, it is still heavily concentrated on U.S. equities with about 58% of its 2,269 holdings based in the U.S. The remaining 42% of its holdings are based in other countries including Japan (7%), China (5%), and the U.K. (4%). The fund's top three holdings include Apple Inc. (AAPL), a provider of personal computers, mobile communications devices, and related software and services; Microsoft Corp. (MSFT), a provider of various software products and electronic entertainment devices; and Amazon.com Inc. (AMZN), an e-commerce company.
- Performance over 1-Year: 9.5%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 2.28%
- 3-Month Average Daily Volume: 2,666,531
- Assets Under Management: $27.9 billion
- Inception Date: March 8, 2007
- Issuer: Vanguard
VEU tracks the FTSE All-World ex U.S. Index, an index designed to gauge the performance of thousands of companies in 46 different countries. The ETF provides exposure to a broad range of primarily large-cap companies in both developed and emerging markets, excluding the U.S. The fund follows a blended strategy of investing in a mix of value and growth stocks. It may appeal to investors as part of a long-term portfolio and as a way to gain international diversification. Nearly 38% of the fund's 3,497 holdings are located in Europe, followed by 29% in the Pacific region, and 27% in various emerging markets. The fund's top three holdings include Alibaba Group Holding Ltd. (BABA), a China-based technology company offering an e-commerce platform.; Tencent Holdings Ltd. (700:HKG), a China-based multinational technology company.; and Nestle SA (NESN:VTX), a Switzerland-based multinational packaged food company.
- Performance over 1-Year: 10.2%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 2.12%
- 3-Month Average Daily Volume: 251,623
- Assets Under Management: $5.4 billion
- Inception Date: April 6, 2009
- Issuer: Vanguard
VSS tracks the FTSE Global Small Cap ex U.S. Index, which gauges the performance of thousands of stocks in over 46 countries. The ETF provides exposure to non-U.S. small-cap stocks across a broad range of developed and emerging market economies. It follows a blended strategy of investing in both value and growth stocks. By focusing on small caps as opposed to large caps, which tend to be multinational companies that generate revenue globally, the fund provides better pure play exposure to the performance of local economies. Of the fund's 4,026 holdings, 34% are based in Europe, 28% in the Pacific region, and 23% are based in various emerging markets. The fund's top three holdings include Kirkland Lake Gold Ltd. (KL:TOR), a Canada-based gold mining and exploration company; Kinross Gold Corp. (K:CAQ), a Canada-based gold exploration and production company; and Open Text Corp. (OTEX:TOR), a Canada-based provider of enterprise information management solutions.
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