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 is forecasting global output to rise 6% 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 expected to rebound in 2021 after last year’s pandemic-induced contraction.
- Three ETFs for investing globally are VWO, SPDW, and VXUS.
- The top holdings of these ETFs are Tencent Holdings Ltd., sponsored GDRs of Samsung Electronics Co., Ltd., 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, the global ex-U.S. benchmark MSCI All Country World Index has outperformed the U.S. market. The index has provided total returns of 40.2% over the past 12 months, slightly surpassing the S&P 500’s 38.8%, as of June 2, 2021. The best-performing of the three ETFs listed below is the Vanguard FTSE Emerging Markets ETF (VWO), based on performance over the past year. All numbers below are as of June 3, 2021.
- Performance over 1-Year: 39.7%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 1.76%
- 3-Month Average Daily Volume: 9,894,998
- Assets Under Management: $84.3 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. VWO is most appropriate for long-term investing strategies. The top holdings of the fund include 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; and Taiwan Semiconductor Manufacturing Co., Ltd. (2330:TAI), a Taiwan-based semiconductor manufacturing and design company.
- Performance over 1-Year: 35.2%
- Expense Ratio: 0.04%
- Annual Dividend Yield: 1.67%
- 3-Month Average Daily Volume: 1,617,020
- Assets Under Management: $11.7 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 consumer discretionary stocks make up nearly half of the ETF portfolio combined. SPDW is among the cheapest global investing ETFs available. The top holdings of the fund include sponsored GDRs of Samsung Electronics Co., Ltd. (SMSN:LON); a South Korea-based multinational electronics company; Nestlé S.A. (NESN:SWX), a Swiss food and drink conglomerate; and ASML Holding NV (ASML:AMS), a Netherlands-based semiconductor company.
- Performance over 1-Year: 36.0%
- Expense Ratio: 0.08%
- Annual Dividend Yield: 1.99%
- 3-Month Average Daily Volume: 3,257,440
- Assets Under Management: $48.9 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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