Despite a number of challenges, 2013 finally ended with record gains for global stocks, driven mainly by the Fed’s easy monetary policies and improving global economic conditions. This trend is expected to continue into 2014 as the recent indicators suggest a bright outlook and increased confidence globally.
Per IMF, the global economy is expected to grow 3.6% in 2014, up from the expected 2.9% in 2013, which would continue to fuel growth in the financial markets. Most of the global growth is driven by the U.S. economy, where activity is picking up rapidly.
The Fed’s plan to curb its ongoing monetary stimulus starting this month while at the same time maintaining short-term interest rates at a very low level is spreading optimism in the entire world. The second largest economy – China – is showing speedy recovery while the Japanese economy turned around the corner on the heels of ‘Abenomics’.
Europe is also showing substantial improvement with reduced debt worries and strong growth in some of the key countries, in particular U.K. and a few Euro zone members. However, the region’s growth could be hampered going forward as the Standard & Poor recently downgraded the long-term debt rating for the European Union by one notch to AA+ (read: European ETFs in Focus on Standard and Poor's Downgrade).
Further, emerging markets may continue to remain depressed in 2014 from the Fed tapering plans and the resultant increase in dollar as well as political issues in some nations (read: 3 Emerging Market ETFs to Watch for Political Issues in 2014).
In order to minimize the overall risk from various nations, ETFs that have impressive levels of diversification could prove the most effective. Generally, diversification could range between different asset classes, market caps, styles, sectors or industries and countries.
Here, we have highlighted three most diversified global ETFs that are widely spread out across each sector and security. These funds seek to offer solid exposure to global equity markets while at the same time eliminate company-specific risks.
This is especially true given that these products hold a great deal of stocks and do not allocate a big chunk of assets to any particular security (see: all the World ETFs here):
Vanguard Total World Stock ETF (VT)
This fund provides broad exposure to the developed and developing markets by tracking the FTSE Global All Cap Index. Holding a large basket of 5,196 securities, the top 10 firms make up for just 7.3% of total assets. American firms account for nearly 49% share while Japan, United Kingdom and Canada round off to the top four with single-digit allocation.
From a sector look, financials take the top spot at 18% while industrial, technology and consumer discretionary make up for 12% share each (read: 3 Hot Sector ETFs for 2014). The fund has over $3 billion in AUM and sees solid volume at nearly 274,000 shares a day. The ETF charges 19 bps in fees per year from investors and was up over 21% in 2013.
iShares MSCI ACWI ETF (ACWI)
Investors seeking diversified exposure across the globe could also find ACWI an intriguing choice. The fund follows the MSCI All Country World Index and holds 1352 securities with none of them making up for more than 1.43% of assets. Financials, information technology, consumer discretionary, industrials and healthcare all receive double-digit allocation.
In terms of country exposure, U.S. takes the top spot at 48.5% while other countries like United Kingdom, Japan and Switzerland make a nice mix in the fund’s basket. The product has accumulated about $5.2 billion in its asset base and trades in heavy volume of more than 1.2 million shares a day. Expense ratio came in at 0.34%. The ETF added nearly 22% in 2013.
SPDR MSCI ACWI IMI ETF (ACIM)
This ETF is often overlooked by many investors due to its AUM of $12.3 million and average daily volume of nearly 2,000 shares a day. The fund charges 25 bps in annual fees and expenses and tracks the MSCI ACWI IMI Index (read: Time for This Top Ranked Global ETF (ACIM)?).
In total, the product holds 772 stocks with half of the portfolio going toward U.S. firms. Other countries receive single-digit allocations. Here again, financials occupy the top position with one-fifth share, closely followed by industrials, consumer discretionary and information technology. From a security look, each firm holds less than 1.02% share in the basket. ACIM was up about 26% in 2013.
These products could be worthwhile for investors seeking to participate in the global recovery with less risk and higher diversification benefits.
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