Given the current economic backdrop, increasing exposure to global equities can be a sound strategy. The S&P World Index, which tracks the performance of stocks from 24 developed economies, has risen 19.8% over the past year and 4.53% quarter to date.
The legal uncertainty surrounding the tariffs imposed by the Trump administration, a weakening greenback, and economic and political uncertainty are turning investors away from U.S. assets, driving them to diversify beyond the U.S. markets.
Per data from LSEG Lipper, as quoted on Reuters, global equity funds attracted $10.65 billion in net inflows, marking the biggest weekly purchase since Aug. 13. Below, we have highlighted a few key drivers behind the inflows into global equity funds.
With a September rate cut almost certain, expectations of additional Fed easing later this year are adding to the appeal of global equities. Per the Reuters article, global equity funds saw their strongest inflows in three weeks through Sept. 3, fueled by rising expectations of a Fed rate cut this month.
Markets are certain that the Fed will proceed with rate cuts in September, October and December, with the CME FedWatch tool showing a 100% chance of cuts in October and December.
A weakening greenback is further fueling interest in global equity funds. The greenback’s value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the U.S. dollar less attractive to foreign investors, as this weakens it.
According to TradingView, the U.S. Dollar Index (DXY) has fallen 0.69% over the past five days and 10.18% year to date.
A recent warning by Goldman Sachs has heightened the concerns of a growing AI bubble. While investing in the technology sector offers exposure to AI’s growth potential, it also brings concentration risks and possible systemic vulnerabilities (Read: ETFs to Consider as Goldman Sachs Flags AI Risks).
If the AI-driven stock market bubble bursts, heavily tech-reliant investor portfolios may suffer significant losses, which makes diversifying beyond tech funds and companies a smart play.
If your portfolio is largely invested in ETFs tracking broad U.S. market indexes such as the S&P 500, you are, directly or indirectly, heavily exposed to the information technology sector, particularly in the “Magnificent 7” tech leaders. The S&P 500 allocates roughly 34% to information technology.
To balance this tilt, adding international equity ETFs can broaden geographical exposure and strengthen overall diversification. Additionally, investing in international equity ETFs may boost risk-adjusted returns.
Dimensional International Core Equity Market ETF employs an active strategy seeking long-term capital appreciation. The fund has amassed an asset base of $11.23 billion and charges an annual fee of 0.18%.
DFAI has a basket of 3,721 securities, with double-digit exposure to Japan (22.62%), the U.K. (12.6%) and Canada (11.75%). The fund has a one-month average trading volume of about 906,000 shares.
Dimensional International Core Equity Market ETF has risen 4.54% over the past month and 16.46% over the past year.
Avantis International Equity ETF employs an active strategy and seeks long-term capital appreciation by investing primarily in a diverse group of non-U.S. companies across countries, market sectors and industry groups. The fund has amassed an asset base of $8.79 billion and charges an annual fee of 0.23%.
AVDE has an asset basket of 3,172 securities, with double-digit exposure to Japan (21.34%), the U.K. (12.18%) and Canada (11.4%). The fund has a one-month average trading volume of about 510,000 shares.
Avantis International Equity ETF has gained 5.04% over the past month and 19.64% over the past year.
Schwab International Equity ETF seeks to track the performance of the FTSE Developed ex-US Index with a basket of 1,453 securities. The fund has amassed an asset base of $50.12 billion and charges an annual fee of 0.03%.
SCHF has double-digit exposure to Japan (21.13%) and the U.K. (12.55%). The fund has a one-month average trading volume of about 11.46 million shares.
Schwab International Equity ETF has rallied 4.16% over the past month and 15.07% over the past year.
SPDR Portfolio Developed World ex-US ETF seeks to track the performance of the S&P Developed Ex-U.S. BMI Index with a basket of 2,396 securities. The fund has amassed an asset base of $28.94 billion and charges an annual fee of 0.03%.
SPDW has double-digit exposure to Japan (24.06%) and the U.K. (14.77%). The fund has a one-month average trading volume of about 3.39 million shares.
SPDR Portfolio Developed World ex-US ETF has gained 4.27% over the past month and 15.96% over the past year.
Schwab Fundamental International Equity ETF seeks to track the performance of the RAFI Fundamental High Liquidity Developed ex US Large Index with a basket of 948 securities. The fund has amassed an asset base of $17.21 billion and charges an annual fee of 0.25%.
FNDF has double-digit exposure to Japan (22.38%), the U.K. (11.84%) and Canada (10.6%). The fund has a one-month average trading volume of about 1.56 million shares.
Schwab Fundamental International Equity ETF has risen 4.81% over the past month and 18.03% over the past year.
Those willing to take on slightly more risks can increase their exposure to emerging market ETFs, unlocking the potential for higher returns. Investors can look into funds like iShares Core MSCI Emerging Markets ETF IEMG and Vanguard FTSE Emerging Markets ETF VWO.
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iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports
Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports
Schwab International Equity ETF (SCHF): ETF Research Reports
Schwab Fundamental International Equity ETF (FNDF): ETF Research Reports
SPDR Portfolio Developed World ex-US ETF (SPDW): ETF Research Reports
Avantis International Equity ETF (AVDE): ETF Research Reports
Dimensional International Core Equity Market ETF (DFAI): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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