Diversification With Global ETFs

ETF Trends

Most equities investors have picked out their favorite U.S. companies and sectors, but this U.S.-centric theme leaves out a large portion of the world economy. Alternatively, investors can utilize exchange traded funds that provide regional and country-specific exposure to gain exposure to global growth.

“The global expansion is seen ramping up as 2014 progresses, with growth forecast to reach 3 percent by the fourth quarter, up from 2.6 percent in the first quarter,” according to to S&P Capital IQ.

Investors can take a look at broad stock ETFs that cover global growth, such as the Vanguard Total World Stock ETF (VT) , which tracks 5178 companies from around the world. VT is up 19.5% year-to-date.

In Europe, the European Central Bank has enacted a more aggressive monetary policy to help support the Eurozone after the the financial debt crsis, lowering benchmark rates to 0.25%, reports John Wasik for Reuters.

Some have also argued that European stocks are undervalued compared to the U.S. since the Eurozone is just exiting a recession, whereas the U.S. has been on the path to recovery for a while.

For broad Europe exposure, investors can look at something like the Vanguard FTSE Europe ETF (VGK) , which tracks stocks from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. [Europe ETFs Look to Keep Rolling]

In the emerging markets, China is still leading the charge, with an economic expansion of 7.8% in the third quarter. The Chinese economy is expected to expand 7.4% in 2014, leading world economies.

The iShares MSCI Emerging Markets ETF (EEM) provides broad exposure to emerging market countries, including a 19.4% allocation to China. [BlackRock: A Long Haul Emerging Markets ETF]

Nevertheless, potential investors should be aware of the possible currency risk ahead. Once the fed eventually eases back on its accommodative measures, the U.S. dollar will strengthen, which could hurt non-U.S. dollar-denominated foreign investments – foreign investments in a weaker currency will be worth less U.S. dollars once converted over.

For more information on global exposure, visit our global ETFs category.

 

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