While companies within the S&P/ASX 200 Index (INDEXASX: XJO) can provide a great building block for your share portfolio, the truth is that the Aussie sharemarket is quite small by global standards.
On a market cap basis, the ASX 200 accounts for about 80% of the total ASX listed sharemarket, but only around 2% of the global market cap of listed stocks.
With this in mind, the basics of diversification tell us that we can potentially gain superior risk-reward trade-offs by investing in global markets – but where do we start?
Below, I've taken a look at 3 hot exchange-traded funds (ETFs) on the ASX that can provide global sharemarket exposure in one handy investment vehicle.
1. Vanguard MSCI Index International Shares ETF (ASX: VGS)
This Vanguard International ETF provides exposure to most global markets and specifically excludes the ASX, meaning you won't double up on exposures in your current ASX portfolio.
The ETF is highly diversified, with 1,592 holdings and a market cap of $92.67 billion, and has the largest exposures to the USA (64.8%), Japan (8.2%) and United Kingdom (5.7%).
In terms of individual holdings, the market-cap-weighted nature of the ETF means the FAANG stocks are the biggest individual holdings such as Apple Inc., Microsoft Corp and Amazon.com.
I'm personally a shareholder in this global Vanguard ETF and like the exposure that it provides to a variety of markets I otherwise wouldn't be invested in.
2. Vanguard Diversified High Growth Index ETF (ASX: VDHG)
This Vanguard-run ETF has a 90% allocation to global equities and 10% to fixed income, which can provide a minor defensive edge to your ASX portfolio.
The high growth fund tracks the weighted-average return of a number of global indices and is effectively a combination of other Vanguard funds, without paying the separate management fees.
For instance, the top holding of this ETF are its wholesale Vanguard Australian Shares Index Fund and Vanguard International Shares Index Fund with holdings of 36.0% and 26.5%, respectively.
The management fee of 0.27% per annum is certainly not too high given the diversification involved, and this ETF could be a one-stop-shop for all of your investment needs if you're more of a passive investor.
3. iShares S&P 500 ETF (ASX: IVV)
This fund, managed by investment management corporation BlackRock, Inc, provides a convenient way to gain exposure to the largest equities market in the world, being the United States.
By investing in this ETF with a management fee of just 0.04%, you can get pure access to the top 500 stocks by market cap in the USA.
While the unit price of $441.91 makes it a little more expensive to get into the fund if you have limited capital at the moment, the Australian-domiciled fund could be a great starting point for international diversification.
