In this piece, we will take a look at the 12 best global ETFs to buy. If you want to skip our overview of the global economy and want to look at the top five ETFs on this list, then check out 5 Best Global ETFs to Buy.
If there's one thing that can be said for sure, it's that the global economy has not seen a year of consistency since the outbreak of the coronavirus pandemic at the tail end of 2019. Courtesy of globalization and rapid advancements in communications and transportation, the world is connected in ways that people living just a hundred years ago would have thought unimaginable. The dominance of the developed world, made of countries primarily in North America and Europe in the global economy has shifted over the past two decades as Western firms have shifted to the East to enjoy low manufacturing costs and improve their margins.
This shift also leads to an interconnected economy which sees firms rely on thousands of companies in different countries as part of their supply chains. As an illustration, consider one of the world's most popular products, Apple Inc. (NASDAQ:AAPL)'s iPhone. Widely credited to having disrupted the smartphone industry in 2007, Apple has gained meteoric success due to the iPhone, and the firm relies on its global supply chain to ship the smartphone not only to Americans' hands but also to citizens of other countries. Apple's latest data shows that the firm relies on 200 companies to procure and manufacture materials for its products, and these operate through more than 600 production facilities all over the world. Most of these are spread over several Asian countries such as South Korea, Japan, the Philippines, Taiwan, and China. So, any disruption in the global transportation network risks affecting Apple's operations, which in turn can kick off a chain reaction where other companies that rely on the Cupertino, California technology giant for their revenue can also see their coffers dry up.
While Apple is just a single example of global interconnection, manufacturing, and operations are not the only industries that are dependent on each other's performance in different regions. One of the most sensitive and highly connected industries is finance. Just like supply chains, manufacturing, and operations have benefited from connectivity, the financial world of today is vastly different from the time when Aaron Burr Jr., the third vice president of America, set up the Manhattan Company as a bank in New York in 1799. This bank would eventually go on to become the world's largest private bank in terms of net assets, JPMorgan Chase & Co. (NYSE:JPM). News travels in the blink of an eye, and any uncertainty about the economic environment of giants thousands of miles away can impact stocks and securities trading in America.
This trend of global reliance and interconnections affecting foreign markets is quite in play these days. China, one of the largest economies in the world, is seeing weak economic growth and this is causing the U.S. dollar to shoot up against a basket of international currencies that are typically dubbed together as the dollar index. This is because Chinese economic growth is a large contributor to global economic growth, and if the country fails to live up to investor expectations, then money flows towards the safe haven U.S. dollar due to fears that other assets might not perform so well in a weak growth environment.
And since we're on the topic of global growth, a fresh report from the Organization for Economic Co-operation and Development (OECD) paints a rather gloomy picture. As we mentioned above, the global economy really hasn't been the same since the coronavirus pandemic. There are several additional reasons for this apart from the supply outages and lock downs disrupting businesses and the way of life. One of the biggest hurdles to economic growth is the high interest rate environment that America and the world have entered as central banks try to curtail soaring inflation due to lax monetary policies and market disruptions such as the Russian invasion of Ukraine. The OECD believes that global economic growth is expected to slow down to 2.7% next year, slipping from the already slow 3% growth expected by the end of 2023. The two biggest contributors to this are oil prices - up by 25% since May and the tough interest rate environment. Quoted by Bloomberg, the OECD's Chief Economist Clare Lombardelli shared at a news conference:
After a stronger-than-expected start to 2023, helped by lower energy prices and the reopening of China, global growth is expected to moderate. The impact of tighter monetary policy is becoming increasingly visible, business and consumer confidence have turned down, and the rebound in China has faded.
With this backdrop in mind, we decided to take a look at the best global ETFs to buy, out of which the notable names are
12 Best Global ETFs to Buy
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Our Methodology
For this list of the best global ETFs, we first compiled the 35 biggest global ETFs in terms of net assets which are also listed on U.S. exchanges. Then, they were sorted by their three year annualized returns and those with the highest returns are as follows.
12 Best Global ETFs to Buy
12. First Trust TCW Unconstrained Plus Bond ETF (NYSE:UCON)
Annualized Return Over 3 Years: 0.50%
The First Trust TCW Unconstrained Plus Bond ETF (NYSE:UCON) is an exchange traded fund that invests in bonds. Its investments are not limited to any particular index and the fund has invested in debt issued by the U.S. government, U.S. companies, Mexican companies, European bonds, and international firms. The total net assets are $1.49 billion and the ETF was set up in 2018. It joins iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK), Global X Copper Miners ETF (NYSE:COPX), and iShares Global Energy ETF (NYSE:IXC) in our list of the best global ETFs.
11. Janus Henderson Short Duration Income ETF (NYSE:VNLA)
Annualized Return Over 3 Years: 1.18%
Janus Henderson Short Duration Income ETF (NYSE:VNLA) is part of the Janus Henderson fund family. It has $2.27 billion in net assets and it was set up in 2016. As opposed to some of the more popular ETFs that invest in stocks, this ETF invests in fixed income securities and seeks to outperform a benchmark index of 3 year U.S. Treasury securities. 80% of the Janus Henderson Short Duration Income ETF (NYSE:VNLA)'s funds are invested in bonds, and most of these belong to those issued by banks or energy companies.
10. FlexShares Ultra-Short Income Fund (NYSE:RAVI)
Annualized Return Over 3 Years: 1.31%
FlexShares Ultra-Short Income Fund (NYSE:RAVI) is part of the Flexshares Trust fund family. It has $1 billion in net assets and was set up in 2012. The ETF invests in short duration debt securities, and its portfolio is spread across debt issued by global entities operating in several countries such as Australia, Canada, France, Japan, the U.K., and Germany. However, the majority of the holdings are for debt issued by U.S. entities.
9. JPMorgan Ultra-Short Income ETF (NYSE:JPST)
Annualized Return Over 3 Years: 1.50%
The JPMorgan Ultra-Short Income ETF (NYSE:JPST) is one of the largest ETFs on our list since it has $22.69 billion in net assets. It is part of the JPMorgan funds family and was set up in 2017. As the title suggests, the fund invests in short duration investments. Its investments typically have a duration of less than a year, and the fund has $939 billion in total assets under management out of which $56.4 billion are in short duration bonds.
8. iShares Ultra Short-Term Bond ETF (BATS:ICSH)
Annualized Return Over 3 Years: 1.59%
The iShares Ultra Short-Term Bond ETF (BATS:ICSH) is another ultra short duration ETF. It has $6.1 billion in net assets and it was set up in 2013. Part of the iShares fund family, it seeks to manage interest rate risks and is managed by the global investment giant BlackRock. The ETF tracks an index of 6 month U.S. government T-Bills, and has spread the portfolio across 212 holdings. Some top issuers of the debt in iShares Ultra Short-Term Bond ETF (BATS:ICSH)'s portfolio are NextEra Energy, Inc. (NYSE:NEE) and Morgan Stanley (NYSE:MS).
Avantis Emerging Markets Equity ETF (NYSE:AVEM) is part of the Avantis Investors fund family and it was set up in 2019. The fund has $3.81 billion in net assets and it invests primarily in value companies. The ETF focuses its attention to companies in emerging markets, and its portfolio is spread across information technology, financial services, and consumer discretionary firms among others. Some top stock picks are the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) and Samsung Electronics.
6. Invesco Senior Loan ETF (NYSE:BKLN)
Annualized Return Over 3 Years: 3.72%
Invesco Senior Loan ETF (NYSE:BKLN) invests in debt issued by a wide variety of companies and governments. It was set up in 2011 and has net assets of $4 billion. Some foreign or global entities that have issued debt in the fund's portfolio are Numericable-SFR, Royal Sunshine Luxembourg, and Virgin Media. Along with Global X Copper Miners ETF (NYSE:COPX), iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK), and iShares Global Energy ETF (NYSE:IXC), it is a top global ETF.