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Borders may be closed and travel plans relegated to bucket lists for now, but there’s never been a better time for investors to be thinking globally.
After a years-long streak of outperformance by U.S. equities, many analysts say it’s time to seek out better returns abroad. Luckily, there may be an easy way to accomplish that, while also investing in some of the most compelling themes of 2020 and the future.
An analysis by Todd Rosenbluth, head of mutual fund and ETF research for CFRA, finds that many of the exchange-traded funds and ETF categories that are hot right now have exposure that’s more global in nature than many investors may realize – more global, in fact, than popular benchmarks. That makes some of these ETFs a two-fer, Rosenbluth believes: they offer strong investment theses and diversified exposure.
“There’s no border for great companies,” Rosenbluth said in an interview. “There’s no border for great ideas or themes. A compelling investment theme makes sense globally.”
Read: What will 2021 bring for ETFs?
Rosenbluth’s analysis compares the widely-tracked MSCI All-World Index, which has a 57.7% weighting of U.S. stocks, with several popular strategies.
Clean energy ETFs, which have gotten a boost over the past few months on expectations of a Democratic, and thus climate-friendly, administration, have broad international exposure, Rosenbluth found. The Invesco Solar ETF TAN, +2.18% allocates only 45% of its portfolio to U.S. companies, a metric which falls to 32% of the portfolio of the iShares Global Clean Energy ETF. ICLN, +0.55% In the iShares fund, the second-largest represented country is New Zealand, a country Rosenbluth said he was surprised to see weighted so heavily.
“The research of these ETF managers means they’re finding the leaders within these investment themes regardless of where they’re domiciled even if someone like me wouldn’t have thought of them,” he said.
His research found similar patterns across different themes. The Global X Robotics & Artificial Intelligence ETF BOTZ, -0.37%, for example, has its biggest geographic concentration from Japan, at 45%, with the U.S. in second place at 35%.
That’s not to be confused with BETZ, the Roundhill Sports Betting & iGaming ETF, BETZ, -0.93% which MarketWatch profiled when it launched in June. BETZ has only 34% exposure to U.S. stocks, followed by Britain and Australia. In a sign investors believe in its thesis, the fund has pulled in $178 million in its six months of existence.
It’s ultimately up to each investor to decide what kind of geographic exposure he or she wants, but Rosenbluth argues that “the long-term trend is favorable” for the themes represented here. The coronavirus pandemic may have sped up adoption of some high-tech lifestyle transitions, and the 2020 presidential election goosed interest in clean energy, but all these technologies are here to stay, he said.
“Investors will likely continue to show interest in these in the future because the themes make sense,” he said.
Read next: ETF Wrap: An article of faith
