Those who know the importance of it are investing in international exchange traded fund (ETFs). In fact, funds that target global markets are on pace to attract enough investor dollars this year to beat last year’s total.
This trend is being led in part by the power of emerging markets, which are outperforming developed ones right now. Year-to-date, developed markets are down about 12% while emerging ones are down about 6%. Sam Mamudi for The Wall Street Journal explains that the most recent flows into international-stock funds also suggest that appetites for U.S. stocks haven’t increased—the category saw net outflows of $4.8 billion in June. [Global Sector ETFs: A Growing Trend.]
What’s behind this? Two possible things:
- Investors are looking for funds with low correlations to domestic stocks.
- Investors are making a bet on the long-term prospects of emerging markets – they don’t have much sovereign debt and are generally seen as having better growth potential.
When investing globally, there comes a greater degree of risk, so it’s unwise to put all your eggs in one basket. Rob Griffin for The Independent says that we have seen a global financial crisis, an economic meltdown in Greece, a slew of corporate scandals, changes in governments, regulatory overhauls in many markets and property prices soaring and then crashing around the world. [10 Steps to an International ETF Portfolio.]
To ensure that you’re diversified when choosing global ETFs, take some of these steps:
- Evaluate how much risk you want to take on. Global ETFs come in three general categories: frontier, emerging markets and developed markets. Frontier are the riskiest, developed the least risky.
- Determine how focused you want to be. Single-sector or single-country funds may experience more volatility than broad regional ones.
- Research ETFs using the ETF Resume, where you can find top holdings, country breakdowns and sector breakdowns.
For more stories about global ETFs, visit our global ETFs category. There are hundreds of global equity ETFs available today. You can find them all and sort them according to your preferences by using the ETF Analyzer by selecting “global equity” from the drop-down menu.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.