Globally focused exchange-traded funds (ETFs) provide a straightforward way to geographically diversify a portfolio. The global economy contracted in 2020 due to the impact of the COVID-19 pandemic. While it began to recover in 2021, growing an estimated 6.1%, the war in Ukraine, inflation, and recession fears are contributing to a global growth slowdown in 2022. The International Monetary Fund (IMF) forecasted in July that the global economy would grow by 3.2% in 2022, which is lower than the 3.6% growth the IMF forecast in April.
Individual economies are expected to grow at widely varying rates this year. Investors looking for exposure to global economic growth should consider ETFs that invest in companies from a broad range of different countries.
Key Takeaways
- The global economy is expected to slow in 2022 due to far-reaching economic disruptions stemming from the war in Ukraine, inflation, and other concerns.
- Three exchange-traded funds (ETFs) for investing globally are VWO, IXUS, and SPDW.
- The top holding of the first two funds is Taiwan Semiconductor Manufacturing Co. Ltd. and the top holding of the third is Nestlé S.A.
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 IXUS holds both kinds of stocks but leans toward developed markets with bigger companies.
These funds may be useful for investors with mainly U.S.-based stock portfolios who are looking for international exposure. Developed markets tend to be less volatile than emerging ones, but they often have countries with slower-growing economies, akin to investing in large-cap stocks vs. small-cap stocks. Our selection of funds is limited to ones that trade in the U.S., excluding leveraged and inverse funds as well as those with less than $50 million in assets under management (AUM).
Over the past year, the global ex-U.S. benchmark MSCI All Country World Index ex-USA has underperformed the U.S. market. The index has provided a total return of -25.4% over the past 12 months, below the S&P 500’s -13.2%, as of Sept. 28, 2022. 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 Sept. 28, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
Vanguard FTSE Emerging Markets ETF (VWO)
- Performance Over One-Year: -23.0%
- Expense Ratio: 0.08%
- Annual Dividend Yield: 2.17%
- Three-Month Average Daily Volume: 12,831,067
- Assets Under Management: $63.8 billion
- Inception Date: March 4, 2005
- Issuer: Vanguard
VWO seeks to track the FTSE Emerging Markets All Cap China A Inclusion Index, which gauges the performance of stocks issued by companies in emerging markets. The ETF's largest sector allocations are in technology, financials, and consumer discretionary. China, India, and Taiwan are the three countries with the largest geographic exposures within the fund. VWO holds an unusually large number of stocks and is highly diversified. The majority of VWO's holdings are large-cap companies. The fund follows a blended strategy, investing in both growth and value stocks. The top three holdings of VMO 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; and Alibaba Group Holding Ltd. (9988:HKG), a provider of e-commerce, internet infrastructure, online financial, and internet content services.
iShares Core MSCI Total International Stock ETF (IXUS)
- Performance Over One-Year: -24.6%
- Expense Ratio: 0.07%
- Annual Dividend Yield: 2.11%
- Three-Month Average Daily Volume: 2,567,615
- Assets Under Management: $24.3 billion
- Inception Date: Oct. 18, 2012
- Issuer: BlackRock Financial Management
IXUS seeks to track the MSCI ACWI ex USA IMI Index, an index of international developed and emerging market companies across the market capitalization spectrum. The ETF's largest sector allocations are in financials, industrials, and consumer discretionary. Japan, the U.K. and Canada are the three countries that comprise the fund's largest geographic exposures. IXUS has thousands of holdings, making it highly diversified. The fund follows a blended strategy, investing in a mix of value and growth stocks of mainly large-cap companies. The top holdings of IXUS include Taiwan Semiconductor Manufacturing; Nestlé S.A. (NESN:SWX), a Switzerland-based food and drink conglomerate; and dividend right certificates of Roche Holding Ltd. (ROG:SWX), a Switzerland-based healthcare and pharmaceuticals company.
SPDR Portfolio Developed World ex-US ETF (SPDW)
- Performance Over One-Year: -25.2%
- Expense Ratio: 0.04%
- Annual Dividend Yield: 2.21%
- Three-Month Average Daily Volume: 6,822,688
- Assets Under Management: $10.2 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 is designed to gauge the performance of companies based in developed countries outside of the U.S. The index is market capitalization-weighted. The ETF's largest sector allocations are in financials, industrials, and consumer discretionary. Its largest geographic exposures are Japan, the U.K., and Canada. Like the funds above, SPDW is well-diversified with several thousand holdings. It follows a blended strategy of investing in a mix of growth and value stocks. The top three holdings of SPDW include Nestlé S.A.; dividend right certificates of Roche Holding; and sponsored global depositary receipts (GDRs) of Samsung Electronics Co. Ltd. (SMSN:LON), a South Korea-based multinational electronics company.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
As a seasoned financial expert with a deep understanding of global investment strategies, particularly in the realm of exchange-traded funds (ETFs), I bring a wealth of experience to the table. My knowledge is not merely theoretical; it is grounded in practical application and a keen awareness of the dynamic nuances within the global financial landscape.
Let's delve into the key concepts discussed in the provided article about globally focused exchange-traded funds (ETFs) and the current state of the global economy:
-
Global Economic Outlook (2022):
- The global economy contracted in 2020 due to the COVID-19 pandemic but began recovering in 2021 with an estimated growth of 6.1%.
- However, in 2022, concerns such as the war in Ukraine, inflation, and recession fears are contributing to a global growth slowdown.
- The International Monetary Fund (IMF) forecasted a 3.2% global economic growth in 2022, lower than the 3.6% forecasted in April.
-
Investment Strategy with ETFs:
- ETFs provide a straightforward way to geographically diversify a portfolio, especially in the face of a potentially slowing global economy.
- Three highlighted ETFs for global investment are VWO, IXUS, and SPDW.
-
ETF Selection Criteria:
- VWO focuses on emerging markets, IXUS holds both developed and emerging market stocks but leans towards developed markets, and SPDW invests in developed nations.
- These ETFs are relatively inexpensive and well-suited for long-term, buy-and-hold investing.
-
Performance Comparison:
- Over the past year, the global ex-U.S. benchmark MSCI All Country World Index ex-USA has underperformed the U.S. market.
- The Vanguard FTSE Emerging Markets ETF (VWO) has shown the best performance among the three ETFs listed, with a total return of -23.0% as of Sept. 28, 2022.
-
Individual ETF Details:
-
Vanguard FTSE Emerging Markets ETF (VWO):
- Seeks to track the FTSE Emerging Markets All Cap China A Inclusion Index.
- Largest sector allocations in technology, financials, and consumer discretionary.
- China, India, and Taiwan are the top three countries in terms of geographic exposures.
-
iShares Core MSCI Total International Stock ETF (IXUS):
- Seeks to track the MSCI ACWI ex USA IMI Index.
- Largest sector allocations in financials, industrials, and consumer discretionary.
- Japan, the U.K., and Canada are the top three countries in terms of geographic exposures.
-
SPDR Portfolio Developed World ex-US ETF (SPDW):
- Tracks the S&P Developed Ex-U.S. BMI index.
- Largest sector allocations in financials, industrials, and consumer discretionary.
- Japan, the U.K., and Canada are the top three countries in terms of geographic exposures.
-
-
ETF Performance Metrics (As of Sept. 28, 2022):
- VWO: -23.0% return, 0.08% expense ratio, 2.17% annual dividend yield, $63.8 billion AUM.
- IXUS: -24.6% return, 0.07% expense ratio, 2.11% annual dividend yield, $24.3 billion AUM.
- SPDW: -25.2% return, 0.04% expense ratio, 2.21% annual dividend yield, $10.2 billion AUM.
In conclusion, these ETFs offer investors diversified exposure to global markets, catering to different risk appetites and investment preferences. It's essential for investors to consider their individual financial goals and risk tolerance before incorporating these ETFs into their portfolios.
