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Go For The Gold With This International Equity ETF

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Go For The Gold With This International Equity ETF

Investors are hearing plenty about the possibility of 2020 being the year in which developed markets outside the U.S. finally have their day against American equities.

As it is, broader developed market benchmarks have performed admirably this year, but for investors willing to bet on better things next year, cost-effective exchange traded funds could be the way to go.

What Happened

Enter the SPDR Portfolio Developed World ex-US ETF (NYSE: SPDW). The $5.5 billion SPDW tracks the S&P Developed Ex-U.S. BMI Index and with its scant annual fee of just 0.04%, or $4 on a $10,000 investment, SPDW is one of the cheapest ETFs in the international category.

Up 19.47% year to date, SPDW is fresh off an upgrade to Gold from Silver by Morningstar, a move that gave the ETF the research firm's highest fund rating. Part of the allure of this ETF is its robust diversification.

“The portfolio’s exceptional diversification mitigates the impact of holding the worst-performing names. It owns more than 1,800 stocks and has only 9% of assets in its 10 largest names,” according to Morningstar.

“Its regional composition looks modestly different from a typical fund in the category because it excludes emerging-markets stocks. But stocks from these regions account for about 6% of a typical peer’s portfolio, so ignoring them shouldn’t have a significant long-term impact on the fund’s category-relative performance. Its inclusion of small-cap stocks further improves diversification because many of these firms are more closely tied to their local economies.”

Why It's Important

Not surprisingly, SPDW's low fee has been a meaningful contributor the fund's long-term performance and plays a role in its Gold status at Morningstar.

“The fund has posted solid performance over the 10 years ended in November 2019,” said the research firm. “During this period, it managed to beat the category average by 62 basis points annually while outperforming about two thirds of its category peers. The fund’s expense ratio ranks among the lowest in the category and should continue to provide a strong advantage.”

SPDW allocates almost 38% of its weight to Japan and the U.K., two markets that are inexpensive compared to the U.S. Unlike the MSCI EAFE Index and related funds, SPDW features exposure to Canadian stocks to the tune of 8.34%.

What's Next

Further upside in Eurozone stocks would be beneficial for SPDW investors in 2020 because that's the fund's largest regional exposure.

“Country and regional allocations aren’t far off the category average either. The fund modestly differs from its peers in this regard, but the gap doesn’t pose a significant threat to its category-relative performance,” notes Morningstar. “Eurozone stocks represent the largest regional allocation, at 26% of the fund, while Japan and the United Kingdom make up an additional 24% and 13%, respectively. The fund does not hedge its currency risk, so its exposure to currencies like the euro, yen, and pound can add to its volatility.”

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