There are more than 2,000 shares listed on the ASX. The ASX, however, is only a small portion of the investable universe. Worldwide there are a plethora of stockmarkets in both developed and emerging economies which present investment opportunities.
Here we look at 6 exchange traded funds (ETFs) that can give investors quick and easy access to a variety of international shares.
Benefits of international diversification
International diversification offers a number of benefits. It provides exposure to additional geographies thus lowering jurisdiction specific risk. It provides access to companies listed on exchanges outside the ASX. It provides the opportunity to capitalise on emerging markets offshore. It can provide the opportunity to increase investment returns due to fluctuations in exchange rates.
Benefits of ETFs
ETFs are traded on the ASX like shares, but instead of giving exposure to one company they provide exposure to a basket of underlying securities. ETFs can give instant diversification in a single trade. Plus different ETFs have been designed to give exposure to different sectors and geographies. ETFs can be used to gain exposure to international shares, US shares and emerging market shares, making them ideal for international diversification.
1. US shares
The Vanguard US Total Market Shares Index ETF (ASX: VTS) provides exposure to some of the world’s largest companies listed in the United States. The fund aims to track the CRSP US Total Market Index and has provided returns of 16.73% in the year to 31 October.
The fund is not hedged so investors are exposed to fluctuations in the AUD/US exchange rate. Distributions are made quarterly and management costs are 0.03% per annum. Top holdings include Microsoft (3.61%), Apple (3.34%), Amazon (2.46%), Facebook (1.52%), Berkshire Hathaway (1.33%), JPMorgan Chase & Co (1.25%), Alphabet Class A (1.24%) and Alphabet Class C (1.23%).
The iShares S&P 500 ETF (ASX: IVV) tracks the performance of the S&P 500 index, comprised of large capitalisation US shares. The ETF returned 17.18% in the year ended 31 October. Distributions are made quarterly and management fees are 0.04% per annum.
The fund is not hedged so investors are exposed to fluctuations in the AUD/US exchange rate. Top holdings at the end of October were Microsoft (4.33%), Apple (4.13%), Amazon (2.92%), Facebook (1.82%), Berkshire Hathaway (1.65%), JPMorgan Chase & Co (1.58%), Alphabet Class C (1.51%), and Alphabet Class A (1.49%).
2. International shares
The Vanguard MSCI Index International Shares ETF (ASX: VGS) provides exposure to many of the world’s largest companies listed in developed economies. The fund aims to track the return of the MSCI World ex-Australia Index (with net dividends reinvested) in Australian dollars before fees, expenses and tax. The fund provided returns of 16% in the year to 31 October.
Distributions are made quarterly and management fees are 0.18% per annum. The ETF held 1,589 shares as at 31 October with 64.3% of holdings based in the United States. The top four holdings were Apple (2.77%), Microsoft (2.53%), Amazon (1.80%), and Facebook (1.12%). Other top 10 holdings included JPMorgan (0.99%), Alphabet Class C (0.96%), Alphabet Class A (0.91%), Johnson & Johnson (0.85%), Nestle (0.79%), Proctor & Gamble (0.76%), and VISA (0.75%).
The Vanguard All-World Ex-US Shares Index ETF (ASX: VEU) provides exposure to many of the world’s largest listed companies in developed and emerging economies outside the United States. The ETF tracks the FTSE All World Ex-US Index before fees, expenses and tax and returned 14.62% in the year to 31 October.
Distributions are made quarterly and management fees are 0.09% per annum. The ETF held 3,380 securities as at 31 October spread across Japan, China, the United Kingdom, France, Canada, Switzerland, Germany and more. Top holdings included Nestle (1.38%), Alibaba (1.12%), Tencent Holdings (1.04%), Roche Holding (0.94%), Novartis (0.84%), Toyota (0.77%), Taiwan Semiconductor Manufacturing Co Ltd (0.69%), and HSBC (0.68%).
3. Emerging markets
The iShares MSCI Emerging Markets ETF (ASX: IEM) provides exposure to 800 plus large and mid-size companies in emerging markets. The fund tracks the performance of the MSCI Emerging Markets Index before fees and expenses. The fund returned 13.95% in the year to 31 October. Management fees are 0.67% and distributions are made twice annually.
The fund held stocks across China (31.78%), South Korea (12.17%), Taiwan (11.88%), India (8.94%), Brazil (7.66%), South Africa (4.65%), Russia (4.09%), and elsewhere. Top holdings include Alibaba (4.49%), Taiwan Semiconductor Manufacturing (4.32%), Tencent Holdings (4.18%), Samsung Electronics (3.69%), and China Construction Bank (1.38%).
The Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE) provides investors with exposure to more than 5,000 companies in emerging economies. The ETF tracks the FTSE Emerging Markets All Cap China A Inclusion Index (with dividends reinvested) in Australian dollars before fees, costs and taxes.
Currency is unhedged so investors are exposed to fluctuations in exchange rates. Assets are spread across China (35.2%), Taiwan (14.7%), India (10.9%), Brazil (8.6%), and South Africa (5.3%). The fund returned 26.04% in the year to 31 October. Management fees are 0.48% per annum and distributions are made quarterly.
Top holdings include Alibaba (4.10%), Tencent Holdings (3.85%), Taiwan Semiconductor Manufacturing (2.46%), China Construction Bank (1.23%), Reliance Industries (1.06%), and Ping An Insurance Group Co of China.
Investing internationally can benefit your portfolio by improving diversification. By expanding your investment horizons offshore you also gain exposure to a whole new universe of investment opportunities. These ETFs mean you can invest internationally without even leaving the ASX.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.