Global ETF

By: EconomyWatch   Date: 30 July 2009

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A global ETF invests in different financial markets across the world to hedge investments and produce consistent profits. Global ETFs enables a trader to invest in different markets in different capacities. One can choose to focus on the entire world market or focus more on developing economies. A global ETF is a one stop shop for traders who desire the widest possible stock exposure.

 

How Does a Global ETF Work?
 

Global ETFs try to replicate the performance of the stock markets of different regions by investing in their various lucrative options. The value of a global ETF rises when the indexes of the respective stock markets move higher.

 

Advantages of Global ETFs
 

Being a worldwide investment, global ETFs tend to carry less risk and function as a balancing instrument. The advantages are:

  • Global ETFs follow a different cycle of rise and decline than your domestic stock market. This means that your global ETF may rise in value even while your domestic investments record losses.

  • You can choose the region or regions you wish to invest in. Moreover, you can choose the industry you wish to invest in.

  • Global ETFs are easy to trade and have lower fees than mutual funds.

  • Diversification lowers the risk factor and, hence, strengthens the portfolio.

  • Global ETFs enable you to reap profits on any lucrative situation present anywhere in the world.

  • Following a global ETF also gives traders an insight into the economic position of a region or regions. Thus, big investors can look for direct investments in such regions and make more profits.

Disadvantages of Global ETFs
 

Though odds are always in favor of global ETFs, there are a few disadvantages too. These include:

  • Investing in a global ETF can be harmful when it covers only those countries that are dependent on the region where your other investments lie. This way, losses reflect on all your investments and diversification is negated.

  • Global ETFs can be regarded as ‘putting your eggs in many baskets.’ Though it is a safe practice, profits are adversely impacted by diversification.

  • A lot of factors have to be analyzed before investing in a global ETF. Even after the best planning, a slight modification in the existing economical or political scenario can significantly affect the profit potential.

Even with these limitations, global ETFs in the true sense globalizes your investment. If backed by an informed analysis, it can protect investors against a slumping domestic economy and stock market.


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