ETFs Go Global

It’s taken long enough, but finally Barclays and Vanguard are offering genuinely global ETFs:

the iShares MSCI ACWI fund, and the

Total World Stock fund, respectively. (The latter’s launching next month.) This is great: rather than having to laboriously construct a global stock portfolio, you can just buy one ETF and be done. They’re clean, they’re simple, and, according to Rob Wherry, they’re controversial:

The problem is these ETFs follow static indexes that, more or less, will always own the same countries, sectors and stocks. That means investors can’t pick and choose the spots they want to avoid or own.

Talk about taking a feature and spinning it as a bug! Individual investors have no business picking and choosing, be it either individual stocks or entire countries. The whole point of index funds is that they don’t pick and choose: they just give broad exposure to the market as a whole. And the global market, as a whole, is much broader (and therefore better, from an ETF investor’s point of view) than the US market alone.

But Wherry still seems to be thinking in terms of past performance:

The fund has been trading for only two months. Barclays said the underlying MSCI All Country World Index returned an average annual 17.2% during the five-year period ended March 31.

That was just over six percentage points better than the Spider, but almost four points behind the MSCI EAFE.

The reason to buy these funds isn’t past performance, or even future performance. It’s diversification and simplicity. If you’re greedy, and want to outperform "the market" (whatever "the market" might be), then I daresay these funds aren’t for you. But if you simply want global stock-market exposure, they might well be the way to go. The only thing for the investor to worry about is the fees charged – which is the one piece of information Wherry neglects to provide.

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