Royal Bank of Canada’s (NYSE:RY) Global Asset Management has a page on its website discussing the asset manager’s RBC Portfolio Solutions using global portfolios. While the page is marketing its mutual funds rather than exchange-traded funds (ETFs) – and the audience is Canadian, not American – the sentiment is the same.
Investing globally allows investors to deliver more stable results over the long term.
As the website above points out, the U.S. accounts for 44.3% of the world’s market capitalization. Suppose you invest exclusively in U.S.-based and/or U.S.-listed companies, which leaves more than 55% of the world’s market caps untouched. It suggests that on the fixed-income side of the ledger, the lack of foreign exposure is even higher.
They call this failure to look beyond our own borders as home-country bias.
That got me thinking about constructing a truly global portfolio of ETFs. One in which investors owned at least one ETF from all six continents that have public companies. Sorry, lovers of Antarctica business.
- VanEck Vectors Africa Index ETF (NYSEARCA:AFK)
- iShares Asia 50 ETF (NASDAQ:AIA)
- WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ)
- Franklin FTSE Australia ETF (NYSEARCA:FLAU)
- Vanguard FTSE Europe ETF (NYSEARCA:VGK)
- First Trust Latin America AlphaDEX Fund (NASDAQ:FLN)
- SPDR S&P MidCap 400 ETF (NYSEARCA:MDY)
Anyway, here are seven ETFs for your truly global portfolio.
- 1 ETFs to Buy: VanEck Vectors Africa Index ETF (AFK)
- 2 iShares Asia 50 ETF (AIA)
- 3 ETFs to Buy: WisdomTree Japan Hedged Equity Fund (DXJ)
- 4 Franklin FTSE Australia ETF (FLAU)
- 5 ETFs to Buy: Vanguard FTSE Europe ETF (VGK)
- 6 First Trust Latin America AlphaDEX Fund (FLN)
- 7 ETFs to Buy: SPDR S&P MidCap 400 ETF (MDY)
ETFs to Buy: VanEck Vectors Africa Index ETF (AFK)
When it comes to investing in Africa, you don’t have a lot of options. The VanEck ETF tracks the performance of the MVIS GDP Africa Index, a collection of 73 companies that are incorporated in Africa or generate 50% of their revenue or hold 50% of their assets in Africa.
The pure-play Africa ETF invests 49% of its assets in its top 10 holdings. Names you might be familiar with include Naspers (OTCMKTS:NPSNY), Anglo American (OTCMKTS:NGLOY), and Jumia Technologies (NYSE:JMIA).
Jumia is Africa’s largest e-commerce company. It went public in April 2019 at $14.50 per share. It’s up 55% since its initial public offering through July 27.
The ETF has been around since July 2008. So when you compare it to U.S. ETFs, it’s natural to turn your nose up to it. That’s because it has had an annualized total return of -2.07% since inception through the end of June. However, over the past year, it’s up 30.1%.
The idea of investing in AFK is two-fold: First, Africa continues to develop its economy, and the names on its holdings list will benefit from this growth. Secondly, when the U.S. goes into a slump, it acts as a non-correlating investment.
From a fee perspective, it’s not cheap at 0.79%.
I’ve selected two ETFs for Asia because I’ve got a seventh selection to make other than one for each continent. The iShares Asia 50 ETF tracks the performance of the S&P Asia 50 Index, a collection of some of Asia’s largest and most established companies.
The top three countries by weighting are China (41.6%), South Korea (24.1%), and Taiwan (18.7%). In terms of sectors, the top three are technology (33.4%), consumer discretionary (21.1%), and financials (19.3%).
The top 10 holdings, including Alibaba (NYSE:BABA) and other U.S.-listed Chinese stocks, account for 64% of its net assets.
AIA has ranked in the top two quartiles every year since 2015. A $10,000 investment over the past decade is worth $22,515 today. That’s considerably higher than $17,810 for its Pacific/Asia ex-Japan stock category.
The one thing that currently has investors on edge is the Chinese government’s regulatory crackdown. As a result, many Chinese stocks face increased regulatory scrutiny, resulting in investors heading for the exits.
It might be an opportune time to buy on the dip. AIA is down 9.4% over the past month.
ETFs to Buy: WisdomTree Japan Hedged Equity Fund (DXJ)
The second of my Asia picks, DXJ, got its start in June 2006. Today, in terms of assets under management, it is WisdomTree Investment’s (NASDAQ:WETF) sixth-largest ETF out of 73.
In July 2019, I recommended WETF as one of 10 small-cap stocks to buy from the Alger Small Cap Focus Fund (MUTF:AOFAX). The ETF providers had a tough go over the past years, trading as low as $2 back in the March 2020 correction. It deserves a better fate.
Many investors are hesitant to invest in Japan because of its deflation and aging population. Still, the reality is that Japanese stocks have performed quite well over the past decade, with only the U.S. coming out ahead of it.
Heading into the future, Asia will continue to be a growth story. DXJ gives you access to 403 Japanese companies, many of them doing a considerable amount of business outside the country. Toyota (NYSE:TM) is the ETFs largest holding with a 5.68% weighting.
The three top sectors by weighting are industrials (20.64%), consumer discretionary (18.29%), and financials (15.41%).
$10,000 invested in DXJ a decade ago is worth $23,843 today.
Most importantly, for risk-averse investors, the ETF tracks the performance of the WisdomTree Japan Hedged Equity Index, which uses currency hedging to minimize the currency risk of owning stocks outside the U.S.
Year to date, it is up 11.1%.
Franklin FTSE Australia ETF (FLAU)
This particular ETF gives you access to large- and mid-sized companies trading on Australian stock markets. Its benchmark is the FTSE Australia Capped Index, which means no single company can exceed 25% of the portfolio, and all stocks with a weighting over 5% cannot exceed 50% of the portfolio. So it’s what you call a 25/50 index.
The ETF currently has 111 holdings with a weighted average market cap of $60 billion, although the stocks held vary from as low as $968 million to $116.3 billion. Many of the holdings you probably won’t recognize, so if you’re a curious type, studying up on its top 25 would most likely be a learning experience for many retail investors.
As for the top three sectors, you have financials at the top with a weighting of 31.83%. The next highest is materials (22.37%), and the third-highest is health care at 10.09%. Tech accounts for just 3.46%.
Getting back to company size, 47.94% of the portfolio is invested in stocks whose market cap is $50 billion or higher. Conversely, less than 1% of the ETF is invested in market caps of less than $2 billion.
The top 10 holdings account for 51% of the ETFs net assets.
ETFs to Buy: Vanguard FTSE Europe ETF (VGK)
This ETF tracks the performance of the FTSE Developed Europe All Cap Index. The index comprises stocks of all sizes from 16 different European countries, including the UK, France, Germany and Spain.
I would be prompted to invest partly because VGK holds LVMH (OTCMKTS:LVMUY) in its top 10 holdings. That’s a great business. However, unlike many of the ETFs in this list, it only invests a little more than 16% of its $20 billion in net assets in its top 10 holdings.
Overall, VGK has 1,322 holdings, with a median market cap of $44.9 billion and an average price-to-earnings ratio of 20.0x. The UK represents the highest weight (24.0%), followed by France (15.7%) and Germany (14.2%). If you’re a fan of Scandinavian countries, it invests 13.4% of its net assets in Sweden, Denmark, Finland, and Norway.
The top three sectors for VGK are financial services (15.85%), industrials (15.58%) and health care (13.76%).
YTD, it’s up 14.5% and 30.2% over the past year.
First Trust Latin America AlphaDEX Fund (FLN)
The First Trust Latin America AlphaDEX Fund might not have a lot of assets compared to the iShares Latin America 40 ETF (NASDAQ:ILF) – it has net assets of $1.7 billion invested in 42 stocks – but it more than holds its own from a performance perspective.
YTD, FLN is up 3.0% and 22.4% over the past year.
The ETF tracks the performance of the NASDAQ AlphaDEX Latin America Index. The index is created using several value and growth factors to rank eligible stocks.
The top 50 stocks are then divided into quintiles, with each quintile getting a weighting based on their overall ranking. The stocks in those quintiles are then equally weighted, with rebalancing and reconstitution happening twice a year.
The top three countries represented in the ETF are Brazil (56.66%), Mexico (29.65%) and Chile (11.98%). The largest stock held has a market cap of $115.8 billion, while the smallest checks in at $4.1 billion.
Sector-wise, materials lead the way with a weighting of 28.31%, financials are the second highest at 18.56%, and consumer staples are third with 16.25%.
FLN’s top 10 holdings account for 37% of its net assets.
ETFs to Buy: SPDR S&P MidCap 400 ETF (MDY)
I’ve always been a fan of mid-cap stocks because they give you the best of both worlds. They’re big enough to have better long-term funding in place, but they’re not so big that they can’t grow.
MDY not only represents mid-cap stocks, but it’s also my selection for North America.
There were many other options I could have gone with, including the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), but there’s enough representation from large-cap stocks already.
The ETF tracks the performance of the S&P MidCap 400 Index. The 400 holdings have a weighted average market cap of $7.5 billion, much less than the six other ETFs on my list. The estimated earnings per share growth of the average holding over the next three to five years is 17.03%.
Of the names in its top 10 holdings – they only account for 6% of its net assets – there are several names investors would know. The largest sector by weighting is industrials (17.88%), followed by financial services (14.78%) and consumer cyclical (14.89%).
Since its inception in May 1995, the ETF has delivered an annual total return of 12.0% through the end of June. So if you invested $10,o00 back in 1995, today, it would be worth $170,000.64.
It’s a solid ETF to own for the long haul.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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