The year 2013 can easily be tagged as a period of broad-based global recovery especially in the developed corner of the world. The U.S. market has gained considerable strength that caused many to speculate that the Fed’s ‘QE’ slowdown might be around the corner. U.S. stocks are in record territory so as to reap as much capital appreciation as they can before the much-anticipated ‘taper’ begins.
Gentle numbers are also coming out of Europe with the debt-laden Eurozone having returned to the growth path in Q2. Though the region is far from attaining sustainable growth, just the end of a long-run recession itself is great news.
Consistent growth stories in some key nations like Germany and the U.K. helped in building up this optimism. There were some hopeful cues from the region’s southern region, as well with the Spanish and Portuguese economies showing modest growth.
To add to this, the recent cut in benchmark rate to a record low of 0.25% by the European Central Bank (:ECB) to trigger growth and improve the inflationary environment also inspires some optimism around the region’s growth trajectory. Notably, the ECB follows a directive to maintain inflation rates close to 2% which was far behind the 0.7% inflation rise in October (read: 3 European ETFs Leading the Recovery).
The upsurge in developed nations had its ripple effects in the Asian markets too. Nations like Singapore raised its full-year growth outlook mainly to reflect the revitalization in the western world which boosted the export profile of the former.
Another eastern-world titan Japan turned around thanks to its massive stimulus program which kept its currency low and favored exports. The Japanese Nikkei 225 Index is hovering around a six-month peak level (read: WisdomTree Doubles Down on Hedged Japan ETF Lineup).
Thus, a look at the top ranked global ETF could be a good idea to capture the surge in optimism around the macro economy, especially based on our Zacks ETF Ranking system.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (Read: Zacks ETF Rank Guide).
Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio in the global equities space, we have taken a closer look at the top ranked ACIM. This ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ (see the full list of top ranked ETFs) and is detailed below:
ACIM in Focus
Launched in February 2012, SPDR MSCI ACWI IMI ETF (ACIM) is a passively managed exchange traded fund (ETF) looking to deliver the return of the MSCI ACWI IMI Index that basically invests in developed and emerging markets stocks.
The fund is an overlooked option in the global equities space with around $6.0 million in assets. The product also trades in a paltry volume of about 1,000 shares a day. Being a relatively new entrant in the ETF world might be a reason for the fund’s low level of popularity and liquidity so far.
Despite lower trading volume, the choice is also a cheaper one as it charges 25 basis points in fees a year which is quite below the average expense ratio of about 52 bps in the global equities space.
With 763 stocks in its basket, this fund puts only 6.5% of its total assets in the top 10 holdings with no company accounting for more than 0.93% of the total, suggesting very low concentration risk. Top companies include Exxon Mobil (XOM), Apple Inc. (AAPL) and Microsoft Corp. (MSFT) with a combined share of 2.48%.
In terms of sector exposure, the top allocation, financials, comprise a little greater than one-fifth of the total assets followed by industrial companies and consumer discretionary making up around 13% and 12% respectively.
Beyond this, Information technology (10.8%) and Health Care (10.6%) round out the top five. The Utilities sector (2.54%) gets the least weight.
Style-wise, the fund is a nice mix of growth and value securities which keep investors away from excessive volatility and ensures growth too. As much as 89% focus on large caps also calls for somewhat lower volatility (see Hedge Your Portfolio with Low Volatility ETFs).
ACIM provides investors with a glimpse of the entire world in one way. The fund invests half of its assets in the U.S. It seeks to provide international diversification with Europe and Asia-Pacific accounting for 26% and 13% of the total.
Japan is the priority in the Asian bunch, securing around 8.33% share of the total, while the better-positioned U.K. gets the highest exposure of about 8.0% among European countries.
The fund has returned around 25.0% in the year-to-date frame ending November 27, 2013. ACIM has also returned about 18.5% roughly in the last one-year period ended September 30, 2013. The fund is currently hovering near its 52-week high level. ACIM pays out a yield of 2.03% per annum.
ACIM could be a winner as the underlying countries have bullish prospects. So, for investors willing to be part of this uptrend, ACIM may be an interesting choice given the fund’s compelling risk-return profile.
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