Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global stocks for the valuable geographical diversification they offer your portfolio but don't have the time or expertise to hand-pick a few, the SPDR S&P World ex-US ETF (NYSEMKT: GWL) could save you a lot of trouble. Instead of trying to figure out which global stocks will perform best, you can use this ETF to invest in lots of them simultaneously. Handily, it excludes U.S.-based companies.
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on global stocks, sports a relatively low expense ratio -- an annual fee -- of 0.34%. It yields about 2.3%.
This global stocks ETF has underperformed the MSCI EAFE index over the past three and five years, though it topped it in 2012. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why global stocks?
It's important not to focus your portfolio entirely on U.S.-based companies, lest a major U.S. meltdown cause havoc. Adding some global players can diversify away some risk. (Note, though, that you can also add foreign exposure via U.S. companies that have extensive overseas operations.) Big global stocks also tend to offer dividends, which can bolster a portfolio during downturns.
More than a handful of global stocks had strong performances over the past year. U.K.-based telecom titan Vodafone (NASDAQ: VOD) surged 64% and offers a good way to profit from Europe's rebounding economy. It's setting its sights further, too, recently winning approval to buy all of its Indian subsidiary (it currently owns 64% of it), and positioning itself to benefit more from India's growth. Some are waiting to see whether AT&T or another company buys Vodafone. Bears don't like Vodafone's shrinking free cash flow, but bulls like its dividend and growth prospects. Its yield has recently been above 4%.
Switzerland-based pharmaceutical giant Novartis (NYSE: NVS) popped 32% and yields 3.1%. It suffered a patent expiration for its multi-billion-dollar Diovan drug last year, but it has received a bunch of breakthrough therapy designations from the FDA, and its pipeline is promising. Novartis has a diverse array of drugs on the market, but some worry about new and competing drugs, some of which offer less scary side effects. The company's third quarter offered mixed results, including disappointing earnings but increased projections. Bulls like the positive results for Novartis's avian flu vaccine and hope that it can protect its Sandostatin franchise. Its generic arm, Sandoz, is poised to profit from many blockbuster drugs' expiring patent protection. There's talk that Novartis might split up some of its businesses, too.
France-based oil giant Total SA (NYSE: TOT) gained 25%, and yields 4.5%. Some worry about slowing growth and shrinking margins for big oil companies, and labor problems and geopolitical strife for Total, not to mention its debt. On the other hand, Total SA sports an attractive valuation and is positioned to profit from recent offshore discoveries near Cyprus and growth projects it has been investing in, such as liquefied natural gas (LNG) and solar energy.
And U.K.-based oil titan BP (NYSE: BP) advanced 23%, yielding 4.7%. My colleague Tyler Crowe recently laid out a major issue for its investors: "BP has spent approximately $42 billion for everything related to the spill, and it is on the hook for another potential $55 billion for charges from both the Clean Water Act and local and state government claims." BP has sold many assets to generate needed funds, but it has also kept many promising exploration projects, some of which have already yielded discoveries. Major legal and financial worries aside, bulls like the company's focus on energy efficiency, though rising drilling costs are a concern.
The big picture
If you're interested in adding some global stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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