Most of us don’t have the expertise to beat the average market returns – or the returns that we can earn by simply investing in a globally diversified portfolio. By doing this, we can reduce our portfolio reliance on any single country, industry or company.
The idea is that the poor performance of any single country, industry or company will be negated by the good performance of another country, industry or company. This is commonly referred to as unsystematic risk.
Diversifying our portfolio globally does not guarantee protection against losses. We can still see negative returns if the overall market performs poorly. Typically, this happens during global market crashes, such as the 2008-09 Global Finance Crisis (GFC) and the more recent COVID-19 crash in early 2020.
Here are 3 ways we can instantly gain exposure to a globally diversified portfolio.
#1 Managed Portfolios (Via Robo-Advisors)
In Singapore, there are more than 10 robo advisors. Many of them offer a main managed portfolio that gives us access to a low-cost globally-diversified portfolio. These portfolios are usually created with investments in exchange traded funds (ETFs) or unit trusts.
Robo advisors can also help us adjust our portfolio risk according to our risk appetite with appropriate exposure to stocks and bonds.
For example, Endowus helps us gain access to broad market exposure by curating its Flagship Fund. First, Endowus handpicks global fund managers with the right expertise, scale and track record, and then typically access their lowest-cost share class for investors.
When looking at the underlying investments of its 100% equity portfolio, we can see that its largest exposure is to the Dimensional Global Core Equity Fund. It also comprises smaller exposure to equity funds that have exposure to the US, developing markets, Emerging markets and Asia Pacific small-cap companies.
Source: Endowus
In the year to date (YTD), it has delivered a return of 15.06%. This can be attributed to the good stock market performance in the last year, as its annualised 3-year returns is 4.52% and 5-year returns is 10.17%.
Source: Endowus
Endowus is just one example. Other robo advisors, like StashAway, Syfe, AutoWealth, SaxoWealthCare and others also strive to give us globally-diversified exposure, based on our risk tolerance.
Read Also: Robo Advisors In Singapore (2024): What You Need To Know Before Investing
#2 Unit Trusts
We can also gain globally-diversified exposure by investing in unit trusts on our own (i.e. without a managed portfolio).
One good place to start is looking at the unit trusts that the main Endowus portfolio has invested in. We can also invest in the Dimensional Global Core Equity Fund on our own via the Endowus platform.
The investment strategy of the Dimensional Global Core Equity Fund, however, is to gain broad exposure to companies in globally developed countries. If we want a truly diversified exposure, we may have to buy other funds as well.
Over the past 1-year and annualised 5-year period, the Dimensional Global Core Equity Fund has delivered a return of 15.52% and 10.04% respectively.
Source: Endowus
Again, there are other platforms that also give us access to globally diversified funds, including FSMOne’s Fundsupermart. For example, on the platform, we can invest in the Infinity Global Stock Index SGD Fund, managed by Lion Global Investors.
The Infinity Global Stock Index SGD fund tracks the performance of the MSCI World Index by investing in all, or a representative sample, of the securities that make up the MSCI World Index. In short, we gain exposure to more than 1,500 stocks listed globally by just investing in this one fund.
For reference, the Infinity Global Stock Index SGD fund has delivered a return of 21.09% in the YTD, and annualised returns of 5.6% and 10.96% in the past 3-year and 5-year periods.
Source: Fundsupermart
Again, there are other unit trusts as well as other platforms that give us access to buy the unit trusts as well. We simply provided two examples of how we can gain access.
#3 Exchange Traded Funds (ETFs)
Unlike funds, ETFs are listed on stock exchanges – and we can easily buy them from stock brokerages, such as Interactive Brokers, moomoo, Phillip Securities (POEMS), Tiger Brokers, SAXO, Webull and others.
Several ETFs can instantly give us exposure to a globally diversified portfolio. For example, we can invest in the iShares MSCI ACWI ETF (NASDAQ: ACWI) or Vanguard Total World Stock Index Fund (NYSE: VT). Again, these are just two ETFs that can provide the globally-diversified exposure we want, and there may be many more ETFs that can do the same job.
If we look at the iShares MSCI ACWI ETF (NASDAQ: ACWI), it has a mandate to track the performance of the combined equity market performance of developed and emerging market countries.
In the YTD, its share price has risen 18.46%. At its current price-level, the iShares MSCI ACWI ETF also has a dividend yield of 1.86%.
Over the past 3 years and 5 years, its share price has risen an annualised return of 8.15% and 12.18% respectively.
Source: Tiger Brokers
Similarly, we can invest in the Vanguard Total World Stock Index Fund (NYSE: VT) via our stock brokerages. VT seeks to track the performance of the FTSE Global All Cap Index, which includes approximately 8,000 holdings in over 47 countries, including both developed and emerging markets.
Its return is quite similar. The YTD return is 17.19%, while the annualised 3-year and 5-year returns are 7.84% and 12.15% respectively.
Source: moomoo
As we’ve mentioned in the earlier examples, there are other ETFs that we can also invest in for globally-diversified exposure. We simply provided two examples.
Read Also: Singapore Online Stock Brokerage Account Fees Comparison
You Can Also Diversify Across Time Frames
Apart from diversifying our investment portfolio across countries, industries and companies, we can also consider diversifying across time frames. Making use of a Dollar-Cost Averaging (DCA) strategy, we can make regular investments into the market across different periods.
When prices are “good” or high, we will simply buy fewer units of the investments, as each unit of investment will cost more. And, when prices are “bad” or low, we will buy more units of investments, as each unit of investment will cost less.
This allows us to invest at the average price over the long term, and not lock in a very good or very poor price. As mentioned at the beginning of the article, since most of us do not have the expertise to determine whether it is a good or bad price that we’re investing at, buying at the average price is logical.
Read Also: 20 Investment Platforms Singaporeans Can Use To Invest A Fixed Monthly Sum
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