Diversification is a top priority for many long-term investors. And broad international ETFs can help diversify a portfolio by offering exposure to global markets. Instead of focusing on Australian shares or a single country, these funds give you access to economies worldwide. For long-term investors, this broader exposure might help reduce reliance on the performance of any one market.

But diversification doesn’t remove all risks. Global markets experience ups and downs, just like local markets. As with any investment, understanding the potential benefits and risks of broad international ETFs is important before deciding whether to invest.

This article explores why some investors consider broad international ETFs, how they work, and what makes them different from other index ETFs . It’s packed with information to help give you a clearer picture of these funds and see if they align with your goals. Let's dive in!

What is a broad international ETF?

A broad international ETF is a fund that tracks global stock markets , giving exposure to companies across multiple countries. These funds often focus on developed markets, though some include emerging economies for added diversification .

These ETFs aim to replicate the performance of global indexes like the MSCI World or MSCI ACWI . They allow investors to access global markets without needing to buy individual international stocks. Holdings are also typically weighted by market capitalisation , meaning larger companies or markets have a greater influence.

As mentioned, these funds offer global exposure but come with risks like market fluctuations and currency changes. Understanding how they work is essential to see if they suit your investment goals.

Why long-term investors choose broad international ETFs

Investing globally can offer unique benefits for long-term portfolios. Here are some reasons why broad international ETFs may appeal to certain investors:

• Global diversification : These funds reduce reliance on the performance of a single country by spreading investments across multiple regions.
• Access to different economies : They include companies from developed and emerging markets, potentially capturing growth opportunities in various industries and regions.
• Ease of investing : A single fund provides exposure to hundreds or even thousands of companies, simplifying global investment strategies.
• Balance between risk and opportunity : By including a mix of markets, they aim to balance potential growth with risk management.
• Complement to domestic holdings : For investors focused on Australian shares , these funds can diversify into industries not prominent in Australia.

Risks of investing in broad international ETFs

While broad international ETFs offer diversification, they also come with risks. Understanding these risks is important to make well-informed decisions. Here are a few examples:

• Currency fluctuations : Changes in exchange rates can impact returns, especially for unhedged funds .
• Market volatility : Global markets can experience significant ups and downs, influenced by economic trends and political events.
• Regional instability : Investments in certain regions may face unique risks, including geopolitical tensions or economic uncertainty. These funds spread risk across markets but remain influenced by global economic conditions.
• Management fees : International ETFs may have higher fees compared to domestic options, which can affect long-term returns.

Considering your goals and risk tolerance can help determine whether these funds align with your strategy.

How do broad international ETFs differ from US-focused ETFs?

Broad international ETFs and US-focused ETFs are both popular choices for investors, but they serve different purposes. Each offers unique benefits and risks, depending on what you’re looking for in your portfolio.

The table below highlights key differences to help you compare.

Category	Broad international ETFs	US-focused ETFs
Geographic exposure	Invest across multiple regions, including North America, Europe, Asia, and emerging markets.	Focus exclusively on US markets, tracking indexes like the S&P 500 or Nasdaq 100 .
Sector weighting	Provide exposure to various sectors, balancing technology, finance, healthcare, and more.	Often heavily weighted towards technology, reflecting the dominance of US tech companies.
Diversification	Broader diversification, reducing reliance on a single economy’s performance.	Concentrated in one market, thereby reliant on the strength of the US economy.
Currency impact	Exposed to multiple currencies, influenced by fluctuations in global exchange rates.	Primarily tied to the US dollar, simplifying currency risks but focusing on one currency.
Historical performance	Dependent on global economic trends and the collective growth of regional markets.	Historically strong, reflecting consistent growth in the US market, though future conditions may vary. Note that past performance isn’t a reliable indicator of future results.

Understanding these distinctions can help clarify how these ETFs might align with your investment objectives. Broad international ETFs may suit those seeking global exposure, while US-focused ETFs might appeal to investors who believe in the US market’s potential. Both can play a role in a well-rounded portfolio, depending on your strategy.

Popular broad international ETFs in Australia

Australian investors have access to several broad international ETFs that offer global exposure. Here are some notable options:

Vanguard MSCI International Shares ETF (VGS)

VGS provides exposure to large- and mid-cap companies in developed markets, excluding Australia. The ETF tracks the MSCI World ex-Australia Index , which includes companies from over 20 developed countries.

• Focus : Global diversification across developed markets.
• Top holdings : Apple Inc., Microsoft Corp., Amazon.com Inc., and Alphabet Inc.
• Sector allocation : Heavy emphasis on information technology, followed by healthcare and financials.
• Regional allocation : Predominantly invested in the United States, with smaller allocations to Japan, the United Kingdom, and Europe.

iShares Core MSCI World Ex Australia ESG ETF (IWLD)

IWLD offers exposure to developed global markets, excluding Australia, and focuses on large- and mid-cap companies with better ESG practices. It tracks the MSCI World ex-Australia Custom ESG Leaders Index .

• Focus : Includes companies demonstrating superior ESG practices relative to their industry peers.
• Top holdings : Similar to VGS, including Apple Inc., Microsoft Corp., and Amazon.com Inc.
• Sector allocation : Balanced exposure to major sectors such as technology, healthcare, and financials.
• Regional allocation : Substantial exposure to the United States, followed by Japan, the United Kingdom, and other European countries.

SPDR MSCI World Quality Mix ETF (QMIX)

QMIX aims to capture global equity returns by focusing on companies that score well in terms of quality, value, and low volatility. It tracks the MSCI World Factor Mix A-Series Index .

• Focus : Combining value, quality, and low-volatility factors for a more stable return profile.
• Top holdings : A mix of globally recognised companies with strong fundamentals and competitive valuations.
• Sector allocation : Diverse allocation across sectors, with significant weights in financials, technology, and industrials.
• Regional allocation : Broad exposure to developed markets, with the United States as the largest allocation.

BetaShares Global Sustainability Leaders ETF (ETHI)

ETHI invests in companies that demonstrate strong sustainability and ethical practices. It tracks the Nasdaq Future Global Sustainability Leaders Index , excluding fossil fuel producers and companies involved in controversial industries.

• Focus : Environmental, social, and governance (ESG)-focused companies in developed markets.
• Top holdings : Tesla Inc., Apple Inc., and Nvidia Corp., with an aim to focus on clean energy and ethical technologies.
• Sector allocation : Heavily weighted towards technology and healthcare sectors.
• Regional allocation : Dominated by the United States, with smaller exposures to Europe and Asia-Pacific.

These ETFs provide varying degrees of exposure to global markets, sectors, and investment themes. Evaluating their objectives and allocations can help determine which ETFs complement your investing approach.

Are broad international ETFs your next step in global investing?

With their global exposure, broad international ETFs may complement Australian-focused investments. This can help balance an investment portfolio and reduce reliance on a single economy.

But as with any investment, these funds come with risks – like currency fluctuations, fees, and market volatility. Understanding how they align with your goals and risk tolerance is key.

Investing is personal. Take time to research and consider your strategy to ensure your portfolio reflects your financial priorities. Whatever you decide, a thoughtful approach can help put you on a firmer footing.

Happy investing!