Why Wall Street’s biggest banks are entering the ETF space (Part 4 of 6)
Macro uncertainties impacting global equity exchange-traded funds (or ETFs)
We discussed how State Street’s (or STT) SPDR MSCI World Quality Mix ETF (or QWLD) compares to JPMorgan’s (or JPM) Diversified Return Global Equity ETF (JPGE) on structural aspects. In this part of the series, we’ll assess the key differences or similarities between these ETFs. We’ll analyze the performance, volatility, concentration, and allocation.
Performance and volatility
Returns—or negative returns—reflect gain or loss in the market price of the ETF during that period. Volatility measures the variation in the ETF’s price over the stated time period.
QWLD has more equity holdings than JPGE—1,038 versus 487. QWLD is more concentrated with 14.46% allocation among its top ten holdings. JPGE allocated 4.63% among its top ten holdings as of October 10.
- Geographical – While JPGE’s portfolio is more concentrated on international stocks at 67.69%, the QWLD is mainly allocated to U.S. stocks. U.S. stocks form 60.54% of its portfolio. International stocks form 32.35%.
- Sectoral – JPGE and QWLD are concentrated more towards the healthcare (XLV), consumer (XLY), industrials (XLI), and technology (XLK) sectors.
The short-term returns for JPGE and QWLD are currently in negative territory. This is a result of geopolitical tensions causing uncertainty in regards to the world economy. The uncertainty can be seen in the ETFs’ high volatility figures.
Over the longer term, the instability will settle down. Investors will become more confident about the macro economy. These funds could become a preferred choice for investors in the global equity market. The low expense ratios associated with these funds can be looked at as the silver lining for now.
In the current low rate environment, investors usually prefer dividend ETFs to safeguard their returns. Preferred stock ETFs offer similar benefits. They can be viewed as another variant to dividend. However, these ETFs may not do well under certain market conditions.
In the next part of the series, we’ll discuss why investors should be cautious when investing in this preferred stock ETF.
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