Alistair Berg
With the world feeling flatter than ever, global equity markets are a great way to invest in portfolio diversification and growth potential. For individual investors, however, the complexity of navigating global investment landscapes can be overwhelming. The SPDR® Portfolio MSCI Global Stock Market ETF (NYSEARCA:SPGM) is a simple way to enable access to a diversified portfolio of global equity markets, including geographic representations of developed and emerging markets. If you feel it’s time to reduce your US exposure and go international, this is an easy core fund to do that with.
SPGM is a passively managed exchange-traded fund that seeks to replicate the performance of the MSCI ACWI IMI Index, which is a free float-adjusted market capitalization-weighted index intended to measure the overall equity market performance of developed and emerging markets. The index captures approximately 99 percent of the global equity investment opportunity set.
As to the fund itself, it was launched in 2012, and forms part of the low-cost core SPDR Portfolio suite, a family of portfolio building blocks designed to help investors achieve broad, diversified exposure to core asset classes. At a gross expense ratio of 0.09% the fund provides access to global equities across the market capitalization spectrum, which is incredibly cheap.
A Look At The Holdings
SPGM is very diversified, with over 2,500 stocks in total representing global markets. When we look at the top 10 holdings, we see plenty of familiar, and US, names. This shouldn’t be a surprise, given that the fund is market-cap weighted, and that these US companies are absolute behemoths.
The good thing is that the weightings of the top 10, while dominantly US, are more spread out than what you’d see currently in the Nasdaq or S&P 500. So if you’re bullish on US stocks but nervous about concentration risk, this fund actually becomes a nice, happy middle ground.
Sector Composition
Again — keep in mind, this still has US equities, which means it will be dominated by similar sectors. To that end, as is the case with US markets, Tech makes up the greatest allocation at nearly a quarter of the fund. Financials come in second and Industrials come in third.
One thing I’m glad to see is that Tech is a smaller overall allocation in the fund than what you see in the S&P 500. This I believe, will matter over time as Tech becomes more vulnerable to valuation contraction relative to other sectors.
Geographical Diversification
Yes, the fund is global, but whatever happens to the US will greatly still impact this fund independent of international exposure. The United States makes up 63.33% of the fund overall, with Japan a very distant second at 5.67% and the UK at 3.79%.
The wide geographical diversification gives investors the chance to reduce country-specific risks and benefit from growth opportunities across different geo-economic growth engines. Yes, it’s still heavy US, but provides at least some counterbalance.
Peer Comparison
The Vanguard Total World Stock ETF (VT) is a good fund to compare SPGM again. After all, both funds are designed to give total global exposure. When we look at the price ratio of SPGM to VT, we find that the two have largely been tied over the last two years. No clear performance advantage.
Pros and Cons
On the positive side, SPGM can reduce both country risk and sector risk through passive management with a low-cost approach. There’s, in general, a real case to be made for diversifying internationally, given just how much US equities have outperformed. At least with this fund, you can still have exposure to US stocks while balancing against other country’s stock markets.
But the diversification of global equities does carry inherent risks, including exchange-rate fluctuations and national or regional geopolitical tensions, along with potential short-term volatility. The broad brush that the fund sweeps will also provide less potential return than more concentrated or actively managed strategies at times.
Conclusion
I think this is a very good fund for cheap and easy access to global stocks. Yes, it’s still US dependent, but the overall exposure is broad. Global diversification used to be a net positive, but it hasn’t been for some time. That inevitably will change, and when it does, SPGM likely can benefit significantly.
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