Many investors don’t need to be convinced about the diversification benefits of having exposure to international equities and they’ve been rewarded this year as ex-US stocks rallied.
However, some market participants are reluctant to venture outside the U.S., citing higher volatility as one of their primary concerns. Often, the elevated volatility associated with international equities is the result of geopolitical events, including government upheaval or rapid changes in fiscal or monetary policy. Thing is geopolitical happenings don’t have to burden investors. Thanks to the newly minted WisdomTree GeoAlpha Opportunities Fund (GEOA ), there’s an avenue for upside participation in geopolitical goings on.
GEOA, which came to market last month, follows the WisdomTree GeoAlpha Opportunities Index — a gauge that emphasizes multiple geopolitical and policy shifts, including events, alterations in fiscal and monetary policy, consumer trends and technology. In other words, an investment in GEOA is about much more than a bet on war or government coups.
GEOA Immediately Relevant
A challenge faced by many rookie ETFs is conquering relevance when they come to market. GEOA checks that box for multiple reasons, including the point that geopolitical is high today relative to historical norms.
“The world has weathered geopolitical turbulence before,” noted WisdomTree. “What makes today unique? Past episodes of re-armament or trade realignment were often regional or narrowly sectoral. Today’s shifts encompass defense, technology and supply-chain security all at once. Not to mention, it is global.”
Adding to GEOA’s relevance is its geographic mix. In fact, the new ETF allocates almost 55% of its weight to domestic equities. That’s pertinent at a time when trade policy is shifting at an unprecedented pace and as the White House is pushing more US-based corporation to reshore manufacturing.
“Trade volatility is expensive and must be incorporated into investment decisions. Production is relocating to politically trusted territories, even when labor or energy expenses, or both, are higher,” adds WisdomTree.
Ultimately, GEOA is an efficient avenue for investors attempting to capitalize on geopolitical shifts, not shy away from those events. In essence, the ETF dispels the notion that investors need to wait on the sidelines for geopolitical events to run their course. Plus, GEOA keeps investors away from countries that are adversarial or hostile to the U.S.
“By taking a view that shifts will be good for some countries, regions and companies, GEOA toward the opportunities, instead of shying away. Considering the necessity of pivoting around numerous long-term structural shifts to the global economy, the Fund is allocated toward friends and allies and away from strategic competitors and foes,” concluded WisdomTree.
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