3 great global stock ETFs
ETFs are a great vehicle for investors to sensibly diversify their portfolio. We identify three opportunities.
Mentioned: Vanguard Etclly Cons Intl Shrs ETF (VESG), Vaneck Msci International Quality Etf (QUAL), Vanguard MSCI Intl ETF (VGS)
Portfolio diversification is a key factor in long-term wealth creation. To achieve this, Australian investors should think global.
That's because a typical Australian share portfolio is skewed towards some sectors and industries, as the benchmark is dominated by financials and resource companies. Think the big banks and miners.
So, investing in global equities can help investors sensibly diversify their portfolio, and exchange-traded funds present a great way to achieve this goal.
There is a wide range of global stock ETFs available to Australian investors today. The better options provide diversification across not only stocks and sectors but also countries and currencies.
The best way to group these ETFs is by the scope of the markets they cover.
In Australia, most global equity ETFs offer broad market exposure, further adding to the diversification benefits to investors.
There are a few that are also equipped to offer ESG factor exposure for those investors who consider ESG a critical component of their investment strategy.
Despite several differences, the three international equity ETFs highlighted today are all great, low-cost core holdings that can help diversify investor portfolios.
3 Great Global-Stock ETFs
These exchange-traded funds earn Morningstar Analyst Ratings of Silver.
Source: Morningstar Direct, Morningstar Research. *Amount of correlation ranges between -1 to +1. Fund Size in AUD Million. Data as of 31 January 2023.
1. Vanguard MSCI International ETF
Let’s start with the Silver-rated Vanguard MSCI International ETF (VGS).
It has one of the most diversified portfolios among any ETF available to Australian investors for global equity exposure.
The underlying MSCI World ex-Australia Index has universal appeal for constructing a diversified portfolio that spans 22 developed economies represented by approximately 1,480 holdings.
The index is skewed toward the United States (a common feature across most global indexes), but given that the majority of its holdings are multinationals earning sizable revenue from international markets, the level of country concentration is not as high as it may seem.
Collectively, the stocks in VGS capture about 85% of the developed market investable universe, so it is an excellent core international stock ETF.
VGS could easily be paired with an Australian stock ETF to build a globally diversified equities portfolio.
VGS earns our vote of confidence for offering cheap (0.18% per year) access to the global equity market.
Read more on this topic:
2. VanEck MSCI International Quality ETF
Our next ETF to highlight is the Silver-rated VanEck MSCI International Quality ETF (QUAL).
For investors seeking exposure to high-quality global equities at a competitive fee of 0.40% per year, QUAL is a strong choice.
QUAL fully replicates the portfolio of the MSCI World ex-Australia Quality Index.
This approach yields a portfolio that has notable differences with the MSCI World ex-Australia Index in two broad areas: It tilts toward more large-cap growth names and has different allocations to sectors and geographies.
Technology and healthcare are overweight, while financials are underweight, as their leveraged balance sheets often do not fit the quality parameter of the strategy.
We view this composition as sensible for diversifying a typical Australian core equity exposure portfolio, which is dominated by financials and materials stocks.
For investors seeking to diversify their core Australian equity exposure, QUAL presents a strong choice for its solid investment thesis, effective implementation, and competitive price.
3. Vanguard Ethically Conscious International Shares ETF
Last, but certainly not least, is the Vanguard Ethically Conscious International Shares ETF, which trades under the ticker VESG.
This strategy is a relatively newer offering from the passive behemoth Vanguard, having made its debut in September 2018.
By mimicking the underlying benchmark FTSE Developed ex-Aus Choice Index, this strategy covers large- and mid-cap stocks from 24 developed markets, with the U.S. as the largest country allocation.
The resulting portfolio effectively captures most of the opportunity set available to its actively managed competitors in the world large-cap blend category.
The ESG overlay skews the portfolio toward information technology and healthcare stocks, but, on balance, its sector composition is close to its Morningstar Category average manager.
The underrepresented sectors in the Australian share market, such as IT and healthcare, are well-represented in this strategy, with combined exposure to these sectors standing at 40.7% as of January 2023.
Vanguard charges just 18 basis points per year for this portfolio, easily making it a compelling ETF in the world large-blend Morningstar Category.
