Here's Why You Should Build a Global Portfolio With ETFs

Economic growth worldwide is set to hit its lowest levels since the pandemic. However, according to TradingView, Fitch Ratings and the OECD now see the outlook as slightly stronger than expected, driven by a surge in AI-related investment that offsets the impact of U.S. import tariffs.

Fitch Ratings now projects global economic growth of 2.5% in 2025 and 2.4% in 2026, a slight upward revision of 0.1 percentage point from its September outlook. OECD expects global GDP to slow from 3.2% in 2025 to 2.9% in 2026, before bouncing back to 3.1% in 2027.

The S&P World Index, which tracks the performance of stocks from 24 developed economies, has gained 19.61% over the past year and 2.59% quarter to date, outperforming the S&P 500 over both periods and highlighting that broadening exposure to global equities may be a compelling strategy.

The Case for Global Equity ETFs

Investors with portfolios concentrated in ETFs tracking major U.S. benchmarks like the S&P 500 are more exposed to the information technology sector than they might realize, particularly to the “Magnificent 7” tech giants. The S&P 500 allocates roughly 35% to information technology.

For investors seeking to reduce exposure to U.S. assets, international equity ETFs offer a practical solution. With ETFs offering diversification and tax efficiency, adding international equity ETFs can provide additional benefits of broadening geographical exposure and strengthening overall diversification. Additionally, investing in international equity ETFs could also potentially boost risk-adjusted returns.

According to FactSet data, as quoted on etf.com, international equity ETFs saw inflows of $24.6 billion in November.

Global Equities to Get a Lift From Fed Rate Cuts

Expectations of a Fed rate cut in December add to the appeal of global equities. Per the CME FedWatch tool, markets are anticipating an 87.2% rate cut in the upcoming December meeting, signifying a significant improvement from a month ago.

Falling Dollar Fuels Global Market Opportunities

Additionally, a weakening greenback is further fueling interest in global equity funds. The greenback's value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the U.S. dollar less attractive to foreign investors, as this weakens it.

According to TradingView, the U.S. Dollar Index (DXY) has fallen 0.54% over the past five days and 8.75% year to date. The index has recorded an all-time decline of 17.4%.

ETFs to Explore

International Equity ETFs

Investors can consider the following funds.

Schwab International Equity ETF SCHF has double-digit exposure to Japan (21.28%), the U.K. (12.26%) and Canada (10.76%).

Schwab Fundamental International Equity ETF FNDF has double-digit exposure to Japan (24.44%) and the U.K. (14.95%).

Dimensional International Core Equity Market ETF DFAI has double-digit exposure to Japan (22.69%), the U.K. (12.35%) and Canada (12.30%).

Avantis International Equity ETF AVDE has double-digit exposure to Japan (22%), the U.K. (13%) and Canada (12%).

International Dividend ETFs

Investors can also consider global dividend-focused funds. Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. Companies offering dividends often act as a hedge against economic uncertainty.

Investors can consider WisdomTree International Hedged Quality Dividend Growth Fund IHDG, Vanguard International Dividend Appreciation ETF VIGI and iShares International Select Dividend ETF IDV, with dividend yields of 2.55%, 1.86% and 4.44%, respectively.

Emerging Market ETFs

Those willing to take on slightly more risk can increase their exposure to emerging market ETFs, unlocking the potential for higher returns. The Dow Jones Emerging Markets Index has gained 17.92% over the past year and 0.23% quarter to date.

Investors can look at funds like iShares Core MSCI Emerging Markets ETF IEMG, Vanguard FTSE Emerging Markets ETF VWO and iShares MSCI Emerging Markets ETF EEM.

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This article originally published on Zacks Investment Research (zacks.com).

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