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ETF News And Commentary

Global economic activity seems to be picking up as the International Monetary Fund (IMF) estimates 3.5% growth in 2017 and 3.6% in 2018 compared with 3.1% growth in 2016.  The fund raised its forecasts from the estimates released in October 2016 with easing global macro tensions and rising investment levels worldwide.


Booming financial markets and a recovery in trade seem to be driving the optimism. The IMF stated that one of the reasons for the improved outlook was the increase in U.S. consumer confidence, which hit a 16-year high. Further, better manufacturing results in Europe and Japan also contributed to the same. Eurozone Manufacturing PMI rose to 56.2 in March 2017, up from 55.4 in February. Moreover, Japan’s exports rose 12% year-over-year while its trade surplus rose to $5.64 billion (614.7 billion yen) (read: Join Eurozone Rally with These ETFs).


Emerging markets and developing economies have performed quite well in the recent years, accounting for more than three-fourths of global growth lately, as per IMF. The higher income gap in these nations indicates potential for growth (read: Can Emerging Market ETFs Retain Their Mojo in 2017?).


Risks Involved


Specific downside risks as a result of growing protectionism in the world, trade barriers, rapid credit growth in China due to the credit stimulus by the government and the rise of populism in global politics are concerns, as per IMF.


Moreover, the IMF further warned that a faster path to rate hikes by the Federal Reserve may cause emerging economies to decline. IMF also anticipates that the proposed banking deregulation in the U.S. may result in a financial crisis (read: 4 Hedge Fund ETFs to Counter Geopolitics & Fed Fears).


Considering the current scenario, let us discuss the following ETFs.


Vanguard Total World Stock ETF (VT - Free Report)


This fund is one of the broadest options available in the equity market, offering a global diversified exposure to investors at a relatively cheaper expense ratio.


It has AUM of $10.4 billion and charges a paltry 11 basis points in fees per year. From a geographical perspective, its top three allocations are the U.S., Japan, and UK, with 52%, 8%, and 6% exposure, respectively. From a sector look, it has significant exposure to Financials, Technology, and Consumer Cyclical, with 19%, 15%, and 12% allocation, respectively. Apple Inc (AAPL - Free Report) , Microsoft Corp (MSFT - Free Report) , and Alphabet Inc (GOOGL - Free Report) are the top three holdings of this fund, with 1.6%, 1.1%, and 1.1% allocation, respectively (as of March 31, 2017). The fund returned 5.85% in the year-to-date time frame and 9.4% in the past one year (as of April 19, 2017). VT currently has a Zacks ETF Rank #2 (Buy) with a Low risk outlook.


iShares MSCI ACWI ETF (ACWI - Free Report)


This fund is one of the popular options available in the equity market, offering a balanced diversified exposure to global large-cap blend equities.


It has AUM of $6.47 billion and charges 33 basis points in fees per year. From a geographical perspective, its top three allocations are to the U.S., Japan, and UK with 51.46%, 7.59%, and 5.20% exposure, respectively (as of April 18, 2017). From a sector look, it has significant exposure to Financials, Information Technology, and Consumer Discretionary with 21.13%, 16.40%, and 11.90% allocation, respectively (as of April 18, 2017). Apple Inc, Microsoft Corp, and Amazon.com Inc (AMZN - Free Report) are the top three holdings of this fund, with 1.90%, 1.23%, and 0.89% allocation, respectively (as of April 18, 2017). The fund returned 5.81% in the year-to-date time frame and 8.85% in the past one year (as of April 19, 2017). ACWI currently has a Zacks ETF Rank #2 with a Low risk outlook.


iShares Global 100 ETF (IOO - Free Report)


This fund is one of the most popular options available in the equity market, offering a diversified exposure to global mega-cap equities.


It has AUM of $1.51 billion and charges 40 basis points in fees per year. From a geographical perspective, its top three allocations are to the U.S., UK, and Switzerland with 60.24%, 10.54%, and 5.87% exposure, respectively (as of April 18, 2017). From a sector look, it has significant exposure to Information Technology, Financials, and Consumer Staples, with 24.17%, 15.97%, and 14.50% allocation, respectively (as of April 18, 2017). Apple Inc, Microsoft Corp, and Exxon Mobil Inc (XOM - Free Report) are the top three holdings of this fund, with 7.38%, 5.03%, and 3.34% allocation, respectively (as of April 18, 2017). The fund returned 4.85% in the year-to-date time frame and 8.41% in the past one year (as of April 19, 2017). IOO currently has a Zacks ETF Rank #2 with a Low risk outlook.


Bottom Line


All in all, despite the risks involved, the global economy seems to be recovering from a turbulent 2016. As a result, we believe it is a good time to enter the market with these ETF investments.


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