Last year, shareholders everywhere simply lost faith in stocks, selling off both undervalued and overvalued ones. You could tap computer keyboards, pore over balance sheets and examine price charts to identify superb companies in which to invest, only to see your “bargain” stock become an even bigger one as your fellow shareholders dumped their shares, convinced the world was ending.
Hence the theory: If all stocks move in lockstep based on investors’ general attitude toward owning equities, you might as well forget the analysis and buy everything — specifically, an exchange-traded fund (ETF) that holds hundreds of stocks from all over the world.
All broad-based ETFs have tracked the same path as the markets, bubbling along nicely until last summer, then plunging and hitting a multiyear low on March 9. True to form, all have since roared back with the markets over the past two months.
Investors who want to own everything in a single ETF should consider the Vanguard Total World Stock Index Fund (VT/NYSE), said Norman Rothery, founder of StingyInvestor.com.
The fund’s management expense ratio of 25 basis points “is a bit high,” he said, noting a lower MER can be achieved by combining a fund that tracks the U. S. market — the Vanguard Total Stock Market ETF (VTI/NYSE), which has an MER of 0.07% — with something like the Vanguard Europe Pacific ETF (VEA/NYSE), with an MER of 0.15%, “so it can be a cheaper approach, but if you’re looking for total simplicity, you can get it down to one fund.”
Our online search found that most “global” exchange-traded funds are dominated by the same handful of U.S. giants: Exxon Mobil Corp., Microsoft Corp., AT&T Corp., Johnson & Johnson, Procter & Gamble Co., Chevron Corp., General Electric Co. and IBM Corp. Although these companies have international operations, the ETFs that hold them seem more American than global.
Similarly, MSN’s Moneycentral site (moneycentral. msn.com/investor) lists 17 ETFs under the category of “world stock,” but many represent plays on individual sectors — industrials, consumer staples, agriculture, gaming, luxury goods, shipping and so on. If you buy such a sector ETF, even one diversified geographically, your hunch about the industry must be correct for your investment to outperform the overall index. If you are not an industry insider, you’re just guessing. So, again, you might as well buy everything.
The Yahoo Finance site’s ETF browser (finance. yahoo.com/etf) lists 19 funds under the category of “foreign-large blend,” referring to funds that hold large-cap stocks from developed countries outside the United States. The largest is the US$29.62-billion iShares MSCI EAFE Index Fund (EFA/NYSE), which indeed owns everything, with 838 large-cap stocks. Its 10 largest holdings each account for less than 2% of the fund: Nestle SA, BP PLC, Total SA, Roche Holding AG, Vodafone Group PLC, Novartis AG, Toyota Motor Corp., Telefonica SA, GlaxoSmithKline PLC, Royal Dutch Shell PLC, BHP Billiton PLC and HSBC Holdings PLC.