Globally-focused exchange-traded funds (ETFs) provide a straightforward way to geographically diversify a portfolio. The global economy suffered a sharp contraction last year due to the impact of the COVID-19 pandemic. The International Monetary Fund (IMF) estimated in April that world output declined 3.3% in 2020. Global growth is expected to bounce back this year, though individual economies will recover at widely varying rates due, in part, to COVID-19 mutations and access to vaccines. The IMF forecasts that the global economy will expand by 6% in 2021 and 4.9% in 2022. 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 expected to rebound in this year and in 2022 after last year's pandemic-induced contraction.
- Three ETFs for investing globally are VWO, SPDW, and VXUS.
- The top holdings of these ETFs are Taiwan Semiconductor Manufacturing Co. Ltd., ASML Holding NV, and U.S.-listed shares of Alibaba Group Holding Ltd., respectively.
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 VXUS holds both kinds of stocks, although it leans toward developed markets with bigger companies. Over the past year, the global ex-U.S. benchmark MSCI All Country World Index has underperformed the U.S. market. The index has provided total returns of 25.4% over the past 12 months, slightly surpassing the S&P 500's 25.4%, as of Aug. 31, 2021. 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 Sept. 1, 2021.
- Performance over 1-Year: 19.9%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 2.06%
- 3-Month Average Daily Volume: 9,313,267
- Assets Under Management: $80.9 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 China, Taiwan, Brazil, and South Africa. Together with SPDW below, it provides broad exposure to global securities while minimizing costs. The top holdings of the fund include Taiwan Semiconductor Manufacturing Co., Ltd. (2330:TAI), a Taiwan-based semiconductor manufacturing and design company; Tencent Holdings Ltd. (700:HKG), a China-based internet services and technology holding company; Alibaba Group Holding Ltd. (9988:HKG), a provider of e-commerce, internet infrastructure, online financial, and internet content services.
- Performance over 1-Year: 29.5%
- Expense Ratio: 0.04%
- Annual Dividend Yield: 2.21%
- 3-Month Average Daily Volume: 1,670,553
- Assets Under Management: $11.9 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 U.S. The index is market capitalization-weighted. Financials, industrials, and information technology 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 the fund include ASML Holding NV (ASML:AMS), a Netherlands-based semiconductor company; Nestlé S.A. (NESN:SWX), a Swiss food and drink conglomerate; and sponsored GDRs of Samsung Electronics Co., Ltd. (SMSN:LON); a South Korea-based multinational electronics company.
- Performance over 1-Year: 26.9%
- Expense Ratio: 0.08%
- Annual Dividend Yield: 2.43%
- 3-Month Average Daily Volume: 2,569,235
- Assets Under Management: $50.6 billion
- Inception Date: Jan. 26, 2011
- Issuer: Vanguard
VXUS targets the FTSE Global All Cap ex-US Index, which is comprised of stocks issued by companies located outside the United States. The fund is the cheapest broad fund providing exposure to both emerging and developed markets. However, due to cap-weighting, the fund includes a small share of emerging market and small-cap stocks. VXUS can be an effective and cheap core holding for investors looking for broad-based international coverage through a single ETF. The top holdings of VXUS include U.S.-listed shares of Alibaba Group Holding Ltd. (BABA); Tencent Holdings; and Taiwan Semiconductor Manufacturing.
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