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What is a Global ETF

Introduction

Global ETFs might interest you if you aim to broaden your investment portfolio and access various international markets. These exchange-traded funds include investments in securities from multiple countries and regions, spanning both developed and emerging markets, different sectors and industries, and various types of assets. Let’s understand what these ETFs mean and discuss their pros and potential risks, and in the end, we will list some global ETFs available in India.

How do Global ETFs work?

Global ETFs operate through the consolidation of funds from numerous investors. These funds are then employed to purchase a collection of securities that mirror the composition of the underlying index or theme. The fund manager of the global ETF will try to mimic the index or theme's performance as closely as possible by holding the same securities in the same proportion as the index or theme. They will also adjust the holdings periodically to reflect any changes in the index or theme.

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Perks of Global ETFs

Global ETFs offer several benefits. A few of them.

  • Access to Global Markets: You gain exposure to a wide range of global markets through a single investment vehicle. You may invest in developed and emerging economies. This access allows you to tap into growth opportunities beyond your domestic market.
  • Cost Efficiency: Global ETFs generally have lower expense ratios than actively managed funds. This cost efficiency reduces the impact of fees on your returns. You can retain a fat portion of your gains.
  • Liquidity: They are traded on major stock exchanges, offering high liquidity. That means you can buy or sell shares at prevailing market prices throughout trading hours, ensuring you have the flexibility to manage your investments efficiently.
  • Transparency: These ETFs typically track well-known international indexes, making their underlying holdings transparent and easily accessible. You can readily see what assets you're invested in, enhancing your ability to make informed decisions.
  • Currency Diversification: Investing in global ETFs exposes you to various currencies, potentially offering a hedge against currency risk and reducing reliance on a single currency's performance.

What are the risks of Global ETFs?

Global ETFs also have some risks. These are
Market risk: These investments are exposed to similar risks as individual stocks. These risks include market volatility, economic cycles, political instability, currency fluctuations, and changes in investor sentiment. They may also experience tracking errors, which is the difference between the performance of the global ETF and its underlying index or theme. Tracking errors can occur due to fees, expenses, rebalancing, sampling, liquidity issues, or market disruptions.

Currency risk: These ETFs may invest in securities denominated in foreign currencies, which exposes them to currency risk. It is the risk that changes in exchange rates will impact the value of the global ETF. This impact is measured by its base currency, usually the Indian rupee. Currency risk can enhance or reduce returns depending on whether the foreign currency appreciates or depreciates against the base currency.

Regulatory risk: Global ETFs may face regulatory risk due to differences in laws, regulations, taxes, accounting standards, disclosure requirements, and investor protection across different countries and regions. Regulatory risk can affect the availability, accessibility, liquidity, and taxation of the global ETF and its underlying securities.

What are some Global ETFs in India to invest in 2023?

There are many global ETFs available in India that offer exposure to different markets and themes around the world. A few of them are:

  • Motilal Oswal NASDAQ 100 ETF (N100): This global ETF mimics the performance of the NASDAQ 100 Index. This index has the 100 largest non-financial companies on the United States' NASDAQ stock exchange. The NASDAQ 100 Index is dominated by technology, consumer, and healthcare companies. The notable companies in this index are Apple, Microsoft, Amazon, Tesla, Facebook, Google, and Netflix. This global ETF offers exposure to some of the world's most innovative and influential companies driving digital transformation and growth in various sectors and industries.
  • Nippon ETF Hang Seng BeES (HNGSNGBEES): This global ETF tracks the Hang Seng Index's performance, representing the 50 most significant and most liquid companies listed on the Hong Kong stock exchange. The Hang Seng Index covers about 65% of the Hong Kong stock market capitalization. It reflects the performance of various sectors and industries, such as financials, energy, utilities, consumer, and technology. This global ETF offers exposure to one of the most dynamic and diversified markets in Asia that is closely linked to mainland China and other emerging markets.

Conclusion

Global ETFs are ideal if you want to diversify or mitigate the risk associated with your portfolio by accessing different markets and themes. However, they also have some risks you should know before investing in them.

 

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