Who doesn’t want to own the whole world? If you are a long term investor who wants exposure to the whole world, index funds are the way to do it. In this post we will examine six funds when combined in a single portfolio will give you exposure to the majority of the worlds economy.
An index fund is an ETF that aims to give you a diversified fund that tracks the performance of a particular country or sector index. The most popular index funds are from the Vanguard platform, the post will include many of these but also others from different providers.
- North America
- Europe excluding UK
- Asia Pacific excluding Japan
- Emerging Markets
The main focus of an index fund covering North America is the US and Canadian stock markets. For this region we have the Vanguard FTSE North America UCITS ETF (VNRT). With an expense ratio of 0.1% this is a low cost fund which gives you exposure to 635 different companies. This fund also distributes a dividend of 1.5% which could be used to supplement an income portfolio.
Over the last year this fund has grown 32.36%, and over the last 5 years a massive 16.65 annually. Additionally, it has a great earnings growth rate of 18.7%. The top three sectors by exposure are Technology (27.7%), Consumer Discretionary (16.1%), and Industrials (13.1%). The Fund’s top three holdings are Apple (5.6%), Microsoft (5%), and Amazon (3.7%); together they make up 14.3% of total fund holdings.
Europe – excluding UK
Europe and the UK have been split due the fact that the London stock exchange is considered a global hub for the world economy, much like New York. Therefore, we will look at the L&G Europe ex UK Equity UCITS ETF (LGEG). This fund has a very low expense ratio of 0.1% giving you exposure to 349 companies across Europe. This is an accumulating fund so does not pay a dividend to you, any dividends the funds holdings pay are reinvested to the fund.
In the last year the fund grew by 12.35% and since launch in November 2018, 21.08%. The fund’s top three sectors by exposure are Industrials (16.5%), Financials (16.3%) and Health Care (14.7%). It also has exposure to multiple currencies such as the Euro, Swiss Franc and Swedish Krona. The top three company holdings are Nestle (4%), ASML (3.2%) and Roche (3.1%); together they make up 10.3% of the fund.
For the UK we will look at the SPDR FTSE UK All Share UCITS ETF (FTAL). This fund includes companies from the FTSE 100 and 250 indexes as well as the small cap index. With an average expense ratio of 0.2% this fund give you expose to 603 different companies. Like with the Europe fund, this too is an accumulating fund meaning that it does not pay a dividend to investors.
Over the last year the fund has grown by 3.51% and has cumulative growth of 32.69% over the last five years. The top three sectors of this fund are Financials (26.61%), Consumer Goods (15.6%), and Industrials (12.71%). The top three holdings are Unilever (4.33%), AstraZeneca (4.17%), and HSBC (3.98%); together they make up 12.48% of the fund. This fund very much reflect the international nature of UK based companies as well the top holdings being mature and stable cash generators.
Asia Pacific excluding Japan
Japan has been split from the wider Asia Pacific region for this due to the fact it is the third largest economy and worthy of its own section. Therefore, we will look at the Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF (VAPX). This fund has a good expense ratio of 0.15% and does pay a dividend of 2.4%. It has an earnings growth rate of 5.1% and holds 395 companies.
In the last year the fund has had growth of 35.99% and over the last five years 13.9% annually. Its top three sectors are Financials (25.9%), Technology (19.5%) , and Consumer Discretionary (10.6%). The funds top three holdings are Samsung (12.3%), AIA Group (4.7%), and BHP Group (3.4%); with the top three making up 20.4% of the total fund. This fund gives you exposure to the key developed economies of the Asia Pacific region such as Korea, Hong Kong and Australia
That Japanese economy is a giant that is currently rivaled only by the USA and China, therefore it makes sense to give it its own fund. The L&G Japan Equity UCITS ETF (LGJG) is the fund we will look at. With a low expense ratio of 0.1% this is a well diversified fund consisting of 337 different companies. In the last year it has achieved returns of 28.37% and since the fund was launched on 13th November 2018, it has achieved a total return of 29.36%.
The top three sectors of this fun are Industrials (19.1%), Consumer Discretionary (18.5), and Information Technology (11%). While the top three holdings are Toyota (4%), Sony (3.1), and SoftBank Group (2.8). Japan is a highly developed economy with very stable cash producing companies. As a result, I would expect long term this fund to be a very steady investment. This fund is an accumulating fund so does not pay a dividend, but if you add steadily to this fund over 10 years I would expect a decent return.
The emerging markets are the future economic powerhouses of the world. They are very much in their growth phase and therefore could give some very good returns. That said, due to the their growth nature a range of volatility should be expected. For this category we have the Vanguard FTSE Emerging Markets UCITS ETF (VFEM). This fund has an average expense ratio of 0.22% and a dividend yield of 2%. With 1,816 company, this fund is highly diversified across the developing economies of the world. It has a great earnings growth rate of 13.4% and over the last year given growth of 31.91%, over the last five years 14.53% annually.
You may be wondering why China, the second largest economy in the world, does not have its own section. There are two reasons for this firstly, China consists of 44.5% of this portfolio, second, China can be very volatile when it comes to stocks so by putting it with different countries the risk is spread out. The top three sectors of this fund are Technology (26.9%), Financials (19.6%) and Consumer Discretionary (17.2%). The top 3 holdings are Taiwan Semiconductor (7.3%), Tencent Holdings (6.8%) and Alibaba Group (5.8%); together they make up 19.9% of the fund. I would expect this fund to give considerable growth in the future.
None of the content in this article should be considered financial advice, I am not a financial adviser and you should always do your own research prior to investing. These are my opinions only.