As the U.S. equities market begins to slow down, investors are looking overseas for potential opportunities. When constructing a more long-term asset allocation strategy, investors will have decide how much foreign equity exposure they want.
The U.S. makes up about half of the world economy, so investors would only need about a 50% position in U.S. stocks. For instance, the Vanguard Total World Stock ETF (NYSEArca: VT), which follows the FTSE Global All Cap Index. The $5 billion allocates nearly 53% of its weight to U.S. stocks with Japan, the U.K. and France combining for more than 18% of the ETF’s weight.
Diversification is the main reason investors should include international exposure. Kahler explains that for the same reason one wouldn’t hold just one stock in an investment portfolio, one should not focus entirely on the U.S. either.
Additionally, looking at other country market capitalization, developed markets, which include those in Europe, Australia Pacific and Japan, account for 40% of the total global market-cap. The remaining 10% account for the emerging markets, Southwest Asia and Latin America. [A Gauge for Foreign ETF Exposure]
Investors may also notice the various appellations in differing fund products. ETFs described as “international” will usually include markets outside the U.S. while “global” or “world” funds will track everything.
“This is a solid ETF though the more attractive traders that don’t mind a more complex allocation may want to consider combining VEU and VOO if they really want to chase their expense ratios down to be as low as possible. In my opinion, this ETF should be combined with additional domestic allocations because the international allocations are simply a little too high for my taste. For investors that don’t mind the heavy international allocation and have a long time horizon to recover from any bear markets, this fund should be considered for regular purchasing,” according to a Seeking Alpha analysis of VT.
VT charges just 0.17% per year, which is less expensive than 87% of comparable funds, according to Vanguard data.
For more information on investing with ETFs, visit our ETF 101 category.
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.