ETF: How to buy the whole world

In ETF Blog, Latest by Kristia van Heerden

In this episode of The Fat Wallet Show, Simon and I discuss the merits of a single ETF strategy based on this Lars Kroijer video. By the end of the episode I land on an ETF investment strategy that is simple and easy to implement. I want exposure to all the world’s markets, weighted by market capitalisation.

Kroijer proposes a single ETF with world-wide exposure, like the Ashburton Global 1200 ETF. This is a feeder fund that invests in:

  • S&P 500 (US) ETF – 64.3%
  • S&P Europe 350 ETF – 18.8%
  • S&P TOPIX 150 (Japan) ETF – 7%
  • S&P/TSX 60 (Canada) ETF – 3.1%
  • S&P/ASX All Australian 50 ETF – 2.1%
  • S&P Asia 50 ETF – 4.8%
  • S&P Latin America 40 ETF – 0.7%

Based on Kroijer’s theory, this single ETF would be all any ordinary investor would ever need. At a TER of 0.48% this is a wonderfully cheap and effective way to gain access to an offshore, diversified, dollar-denominated ETF. Since the ETF is listed locally, it doesn’t count towards your offshore investment allowance either. It seems like a win in every direction.

In terms of diversification, the ETF is invested in 30 countries across seven regions. It covers 70% of the world. However, one of the few the regions not covered in the ETF’s global exposure happens to be the very region we inhabit. This ETF includes some exposure to emerging markets, but Africa isn’t in the mix.

Adding another ETF might be contrary to the letter of Kroijer’s theory, but certainly not the spirit. The easiest way for local investors to add African emerging markets to the ETF would be through the Satrix MSCI Emerging Markets (EM) product. The Satrix China ETF, introduced in 2020 is also an option if you wanted the Chinese economy to take up the same proportion of your portfolio as it does of the world economy.  However, be careful of over-exposure to Asia if you choose to go this route. The S&P Asia 50, included in the Ashburton 1200, invests in companies in Hong Kong, Korea and Taiwan. South Korea and Taiwan make up 12.48% and 13.53% respectively of Satrix’s EM option, with China weighing in at a massive 39.96%. South Africa only comprises 3.43% of that ETF and is the only African country included thanks to industrial giant Naspers.

For greater exposure to Africa, the Cloud Atlas AMI Big50 ex-SA ETF remains a solid option. As the name implies, however, South Africa is excluded from this ETF. Due to the challenges of trading on some African exchanges, this ETF is on the pricey side at 0.85% per annum. Given the role the South African economy plays on the continent, a South African ETF weighted by market capitalisation would be prudent. However, if you are investing in a Regulation 28-compliant retirement or pension product, you might have all the South African exposure you could want. It’s important not to forget about your retirement savings when making these choices.

Some ETF providers can mimic the performance of an index by buying only the largest constituents. That strategy might also apply to buying the world economy in index-tracking products. Instead of trying to represent the world’s economies in relation to GDP contribution, ensure you have exposure to as many regions as you can for the lowest possible price. Be sure to check your geographical exposure and to factor in your retirement product. Have fun with it!

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