Six of the best global equity ETFs
ETFs are widely regarded as excellent products for getting exposure to a wide number of asset classes, but with competing ETF providers using different indices, it can be difficult to know where to start. In the third of this series we take a look at six global equity ETFs.
Many DIY investor portfolios have a ‘home bias,’ which means that they overweight securities from their own country and have relatively little overseas exposure. Global equity exchange traded funds (ETFs) offer investors a cheap way to get diversified exposure to the world’s equity markets, and you only need one or two to achieve this.
A market capitalisation approach is the simplest way to get exposure. However, over five years to the end of May 2017, global equities returned 115% in sterling terms, with the US market, represented by the S&P 500, up by 145%. This outperformance has resulted in the US accounting for an increasingly large weight (59%) in the developed market MSCI World Index, which may weigh on returns if the technology rally that has powered IT stocks such as Google, Amazon and Facebook begins to turn.
One element to consider, for sterling investors, is whether the returns generated by a weakening pound will reverse over the next few years. For example, in 2016 the S&P 500 was up by 11.9% in US dollar terms but a huge 33.6% in GBP terms. Currency-hedged ETFs will protect against such a scenario.
As the ETF market has matured in recent years, a number of global ETFs have come to the market offering small and mid-cap exposure, or factor exposures such as size, momentum and value. These can be a valuable addition to an investor’s toolkit, and we take a look at some of the best.
Use our ETF screener to find the right global equity ETFs for you. All the ETFs described below can be bought on IG’s share dealing platform, where commissions start at just £5 and there are no custody or platform fees.
HSBC MSCI World UCITS ETF (HMWO)
With a total expense ratio (TER) of 0.15% this stands out as the lowest-cost way of getting market cap exposure to developed market equities. It has more than 1600 holdings and a bid-ask spread of just 0.13%. Its weakness is its relatively small market cap size of £195 million, which is significantly less than the £8.5 billion offering from iShares Core MSCI World (SWDA).
Vanguard FTSE All World UCITS ETF (VWRL)
This ETF is the best way to get core exposure to developed and emerging market equities in one product. It has a total expense ratio of just 0.25% and fully replicates the underlying index. Since launching in 2012 it has performed in-line with the underlying index, and marginally better than the MSCI All Country World Index.
SPDR S&P Global Dividend Aristocrats UCITS ETF (GBDV)
This is a physically-replicating ETF that only invests in stocks that have increased their dividend for at least ten years. It has grown its dividend by 15% over the past three years, and yields 3.2%. The country allocation is significantly different to market cap weights, with the US (20.2%), UK (16.3%) and Canada (15.7%) making up the top three.
iShares Edge MSCI World Size Factor (IWFS)
This ETF offers equally weighted exposure to mid-cap stocks that are unlikely to be held in most client portfolios. With 34% exposure to the US, compared to 59% in the MSCI World, it offers better country diversification than a market cap index. It has TER of 0.3%
iShares Edge MSCI World Minimum Volatility UVITS ETF (MVOL)
Minimum volatility ETFs have attracted a lot of assets in recent years, and pick stocks that, in aggregate, have lower volatility than a market cap index as they are less correlated to each other. This ETF has performed to expectations over the past four years, but critics say that the underlying stocks look too expensive on a historic basis. It has substantial weights to the US (61.5%) and Japan (13.5%), and a TER of 0.3%
iShares MSCI World GBP Hedged UCITS ETF (IGWD)
For investors who are concerned about a rally in sterling, this is a good core holding, with an average bid-ask spread of just 0.16%. It should be used in tandem with an unhedged ETF to avoid structural currency shorts in markets which have a large proportion of sales coming from overseas. For instance, the S&P 500 has nearly 50% of sales from overseas, therefore hedging 100% of your exposure would result in an effective US dollar short. The TER is 0.55%.