Outside of the investing world, the terms “global” and “international” are generally used as synonyms for each other, describing the same fundamental premise. However, when investing, these terms convey two significantly different approaches to gaining overseas exposure. Each offers its own risks and benefits, particularly when viewed through the lens of active management.
Risks & Opportunities in Global Investing
Global ETFs invest worldwide, bundling U.S. and overseas exposures together under one umbrella strategy. This approach can provide broad diversification potential, reducing impacts of single-country exposures. It also may allow for portfolio managers to harness changing market dynamics. It generally benefits when the outlook for the global economy appears positive.
When selecting a global ETF, investors should mind their existing portfolio allocations. For those with an already-considerable overweight to U.S. assets, a global ETF could further concentrate those exposures. Additionally, global ETFs vary in their approach to individual country investment. Advisors and investors should be aware of what countries a fund provides exposure to, as well as the individual risk factors for those countries.
With one unified global ETF, investors can take the worry out of needing to adjust domestic and international exposures as outlooks shift. For active managers, global strategies allow for a great degree of flexibility. Should outlooks dim for the U.S. or various regions of the world, they can potentially reduce those exposures while capitalizing on opportunities in other regions. This adaptive approach to global investing may prove particularly advantageous in dynamic market environments. By investing in an actively managed global ETF, investors may also rely on the expertise of the portfolio manager when it comes to individual country risks and investment nuances.
More-Targeted International Investing Approach
International ETFs offer a targeted approach to investing overseas. For U.S. investors, an international ETF invests in other countries ex-U.S. While it varies what regions and countries these funds target, international ETFs increase overall portfolio diversification while remaining more narrowly focused. For investors with an already significant domestic bias, the addition of an international ETF could prove beneficial without increasing U.S. exposure.
Choosing an international ETF allows advisors and investors a greater degree of control over their portfolios. They can combine targeted U.S. exposures with thoughtful, intentional international exposures. Different strategies will carry different degrees of risk, both country- and region-specific. As international ETFs are more targeted, these specific risks may be more significant compared to global ETFs.
As with global ETFs, actively managed international ETFs offer a number of benefits. Active managers bring their country- and region-specific expertise to bear when constructing and/or managing international ETF portfolios. In more targeted strategies, such as those investing in emerging market countries, this knowledge could prove a boon. Additionally, the responsiveness of active strategies could prove beneficial in dynamic market environments.
Invest in Global or International ETFs With T. Rowe Price
T. Rowe Price, an active manager with more than 1,000 investment professionals globally, offers an extensive suite of actively managed ETFs. These include the recently launched T. Rowe Price Global Equity ETF (TGLB ) and the popular T. Rowe Price International Equity ETF (TOUS ).
TGLB invests primarily in large-cap companies within developed markets globally. This includes the U.S., U.K., Australia, Canada, Japan, Israel, New Zealand, and Singapore. It also includes most Western European countries as well as Hong Kong. It largely reflects the geographic distribution of the MSCI World Index, but may also invest in emerging market countries.
TGLB’s portfolio is constructed using bottom-up research while taking the global economic environment into account. The fund offers a high-conviction take on global investing, with a portfolio generally comprising 45-60 stocks. TGLB carries an expense ratio of 0.46%.
Meanwhile, TOUS remains a popular choice with investors this year. The strategy invests across the market-cap spectrum but generally focuses on large-caps in developed markets. The fund managers evaluate a company’s fundamentals, earnings potential, and relative valuation to peers when constructing the portfolio. This results in a portfolio that may offer both value and growth exposures at any given time.
Individual country allocations and weights are generally the result of the bottom-up stock selection. However, the manager may limit an individual country’s weight should its macro outlook appear less favorable. TOUS has a management fee of 0.50%.
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