U.S. stocks have been a mainstay in many investors’ portfolios, with many ignoring international markets altogether. However, traders are remiss if they overlook global ETFs for a diversified portfolio ahead.
The global expansion remains steady and relatively synchronized across major economies around the world. According to Fidelity, most developed economies express a low recession risk and are in the mature stages of a business cycle, with the Eurozone enjoying above trend growth. China, the second largest economy in the world, is also in the midst of an expansionary phase. Overall, the global economy is standing firm.
“We continue to favor global equities in an environment of steady growth, low inflation, and significant monetary accommodation,” according to Fidelity.
Related: ETFs to Capture Global Expansion & Limit Potential Risks
However, Fidelity warned that we are in the midst of a slow transition towards less accommodative monetary policies and global economic activity is likely peaking, with rising risks ahead.
“We anticipate that firming global inflation will foster the shift toward monetary policy tightening, leading to slower liquidity growth and higher volatility in the financial markets. Therefore, smaller cyclical tilts are warranted, in addition to thorough portfolio diversification that includes international equities and inflation-resistant assets,” according to Fidelity.
Smart Beta Strategies That Help Limit Drawdowns
ETF investors who believe in the ongoing strength of the global economy but are wary of potential risks ahead can look to smart beta or factor-based ETF strategies that help limit drawdowns but still participate in upside potential. For instance, Fidelity recently rolled out the Fidelity International High Dividend ETF (NYSEArca: FIDI) and Fidelity International Value Factor ETF (NYSEArca: FIVA).
The International High Dividend ETF tries to reflect the performance of the Fidelity International High Dividend Index, which is designed to reflect the performance of stocks of large- and mid-cap developed international high dividend-paying companies that are expected to continue to pay and grow their dividends.
The International Value Factor ETF tries to reflect the performance of the Fidelity International Value Factor Index, which is designed to reflect the performance of stocks of large- and mid-cap developed international companies that have attractive valuations.
Both international ETFs are types of value plays that help investors focus on companies with steady fundamentals and potentially help people gain improved risk-adjusted exposure to international markets.
For more information on the latest happenings in the ETF industry, visit our Current Affairs category.