YOUR MONEY: The global ETF quandary

Question:

Is it worth buying a US and a world exchange traded fund (ETF)? Or would that be essentially similar baskets of funds? Which would you go for if not both? I am slowly stepping into the ETF world and would appreciate your insights.

— A Fat Wallet Facebook Community member

Answer:

At the moment world ETFs are about 70% US-listed stocks, as US markets have grown well ahead of the rest of the world and their economy is by a long way the largest. It has at times been as low as 55%, but it will be a while before we see that again.

But it’s also true that US ETFs are focused on the global economy. Take Apple — one of the largest holdings in any US ETF. It may be a US company, but its products are sold globally; the same is true for most large US companies.

That said, I do like global ETFs. Though they are dominated by US stocks, I like the extra diversification from markets such as Europe and Asia.

Some global ETFs directly exclude emerging markets, but even if included they’re less than 10%, so fairly small.

A global diverse ETF is always my starting point for a portfolio, and the single largest position. Then I add strategic themed ETFs around that for extra spice in the portfolio.

— Simon Brown, Just One Lap

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