Despite a number of challenges, 2013 finally ended with record gains for global stocks, driven mainly by the Fed’s easy monetary policies and improving global economic conditions. This trend is expected to continue into 2014 as the recent indicators suggest a bright outlook and increased confidence globally.
Per IMF, the global economy is expected to grow 3.6% in 2014, up from the expected 2.9% in 2013, which would continue to fuel growth in the financial markets. Most of the global growth is driven by the U.S. economy, where activity is picking up rapidly.
The Fed’s plan to curb its ongoing monetary stimulus starting this month while at the same time maintaining short-term interest rates at a very low level is spreading optimism in the entire world. The second largest economy – China – is showing speedy recovery while the Japanese economy turned around the corner on the heels of ‘Abenomics’.
Europe is also showing substantial improvement with reduced debt worries and strong growth in some of the key countries, in particular U.K. and a few Euro zone members. However, the region’s growth could be hampered going forward as the Standard & Poor recently downgraded the long-term debt rating for the European Union by one notch to AA+.
Further, emerging markets may continue to remain depressed in 2014 from the Fed tapering plans and the resultant increase in dollar as well as political issues in some nations (read: 3 Emerging Market ETFs to Watch for Political Issues in 2014).
In order to minimize the overall risk from various nations, ETFs that have impressive levels of diversification could prove the most effective. Generally, diversification could range between different asset classes, market caps, styles, sectors or industries and countries.
Here, we have highlighted three most diversified global ETFs that are widely spread out across each sector and security. These funds seek to offer solid exposure to global equity markets while at the same time eliminate company-specific risks.
This is especially true given that these products hold a great deal of stocks and do not allocate a big chunk of assets to any particular security (see: all the World ETFs here):
Vanguard Total World Stock ETF (NYSEARCA:VT)
This fund provides broad exposure to the developed and developing markets by tracking the FTSE Global All Cap Index. Holding a large basket of 5,196 securities, the top 10 firms make up for just 7.3% of total assets. American firms account for nearly 49% share while Japan, United Kingdom and Canada round off to the top four with single-digit allocation.