Globally-focused exchange-traded funds (ETFs) provide a straightforward way to geographically diversify a portfolio. The global economy suffered a contraction last year due to the impact of the COVID-19 pandemic. The International Monetary Fund (IMF) estimated in January that world output declined 3.5% in 2020. While new variants of the coronavirus continue to pose risks in spite of the vaccine rollout, global growth is expected to bounce back this year. The IMF is forecasting global output to rise 5.5% in 2021. 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 rebound in 2021 after last year's pandemic-induced contraction.
  • Three ETFs for investing globally are VSS, ACWI, and VEU.
  • The top holdings of these ETFs are Kirkland Lake Gold Ltd., Apple Inc., and Alibaba Group Holding 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 outperformed the broad U.S. equity market. The S&P 500's total return over the past 12 months is 24.5%, as of February 26, 2021. The best-performing of the three ETFs listed below is the Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS), based on performance over the past year. All numbers below are as of March 1, 2021.

Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS)

  • Performance over 1-Year: 29.4%
  • Expense Ratio: 0.11%
  • Annual Dividend Yield: 1.82%
  • 3-Month Average Daily Volume: 275,097
  • Assets Under Management: $6.4 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 3,937 holdings, nearly 36% are based in Europe, 27% 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.

iShares MSCI ACWI ETF (ACWI)

  • Performance over 1-Year: 28.7%
  • Expense Ratio: 0.32%
  • Annual Dividend Yield: 1.39%
  • 3-Month Average Daily Volume: 3,595,456
  • Assets Under Management: $15.0 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 2,239 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 devices; and Amazon.com Inc. (AMZN), an e-commerce and cloud services company.

Vanguard FTSE All-World ex-U.S. ETF (VEU)

  • Performance over 1-Year: 25.5%
  • Expense Ratio: 0.08%
  • Annual Dividend Yield: 1.92%
  • 3-Month Average Daily Volume: 2,899,645
  • Assets Under Management: $32.1 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 39% of the fund's 3,480 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.

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